Global deflation not going away in a hurry, and that is a positive for India: Geosphere Capital

NEW DELHI: The liquidity flush, mainly caused by the massive bond-buying programme of the US to support its economy, which drove up financial markets in emerging economies, especially India, may turn tighter as the world's largest economy begins interest rate rise cycle later this year.

However, liquidity measures in other geographies such as Europe and China will ensure that the QE environment is not dramatically less benign despite the Fed rate hike, Arvind Sanger, Managing Partner, Geoshpere Capital, told ET Now.

Sanger said that despite the upturn in crude oil prices, global deflation is not going to go away in a hurry, and that is a positive for India, he said.

"India does not go into deflation, but goes into more manageable, more benign inflation. Therefore, that positive backdrop is likely to sustain in FY16 unless something politically risky happens globally that causes oil prices to shoot up and inflation to go up," he said.

One difference over the last year as far as fund flows are concerned is that these flows are not all directed only at India. Last year, it was either the US or India where funds were chasing growth, but this time around there are other parts of the emerging markets that appear to be coming out of their slump.

"India growth is proving to be a little slower and other parts of the emerging markets are looking like they might be coming out of their slump a little bit better.

Therefore, the backdrop is going to be mixed bag in FY16, but it certainly is not going to be hugely challenged again. It just would not be probably as benign as it was in the last 12 months," Sanger said.