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Global rout to prolong if Fed sounds hawkish: Ambit’s Gubbi

Near term trend in global markets will hinge on the message coming from the Fed at the FMOC meet tonight, says Pramod Gubbi, director, institutional sales, Ambit Capital. In an interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy, he says the slide in global markets will persist in case the Fed hints at rate hike early next year.

If the Fed decides to take a dovish view, there could be a pull back in equity and currency markets over the next few days, he says.

India too may be caught in the downtrend if global markets weaken, he says, but adds that when things settle, India will stand out as one of the better markets to invest in because of falling commodity prices.

Gubbi says his firm is more biased towards stocks that stand to gain from a recovering economy, than those which are more of a currency play. He is bullish on sectors like manufacturing, power, railways and defence.

He sees the RBI holding rates in the coming monetary policy review in an attempt to prevent capital outflows because of the turmoil in currency markets.

He says the current panic is a good time for long term investors to accumulate quality stocks, but players with a short term view should wait for clarity to emerge before taking long positions.

Also read: The real reason behind the mayhem in emerging markets

Below is verbatim transcript of the interview:

Q: What is the sense looking like? We have much more to go – 8,000 or 10 percent cut at 7,950 are they all just lines in the sand at this point?

A: It all depends on what comes out of the Fed tonight. The center of all is expectation of Fed rate hike. If the Fed clarifies its stance that they are indeed looking at a rate hike sometime summer of next year then there will be continuance of the turmoil that we have seen.

This could also mean that even for India while we have been holding up pretty well through this correction, it will join that slide at least for the short-term.

When things stabilise a lot more and when the event has come to pass, investors will take a backseat and take a look at different economies and see what it means for different economies and India then should stand out well particularly given where oil is headed.

Q: What are the chances that the Fed would be as hawkish as that and indicate rate hikes, after all inflation has moved away from 2 percent mark?

A: Absolutely. In the first place Fed may reverse its stance or at least sound a lot more dovish tonight given exactly that inflationary expectations have come off quite sharply over the last few months, given the commodity sell-off – that could be a trigger for a pullback, not just in India but across emerging markets both in equities currencies and bond markets.

For all this might become a lot irrelevant and we might see a pullback in the next few days if the Fed indeed sounds dovish.

Q: Amidst all this global noise what does the average investor in India do because now you are getting some of the stocks at 10-15 percent cheaper than what they were about a month back? Do you go in and buy good quality names in both frontline and midcap stocks or do you just wait till this global mayhem passes?

A: Ideally, we would like to wait but timing is something that been hardest for any investor particularly if you are a long-term investor you would like to oversee the short-term issues, any short-term panic that could come in and use the opportunity, the correction in some of the high quality stocks to buy in and build longer term positions. But if you do have a short-term view, you would rather wait for more clarity coming in. It could come in as early as tonight.


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