Expect markets to remain sensitive due to US shutdown: Arindam Ghosh, BlackRidge Capital Advisors

In a chat with ET Now, Arindam Ghosh, CEO, BlackRidge Capital Advisors, shares his views on the current outlook of the local and global market. Excerpts:

ET Now: It is easy to make a bearish argument but that of late has not made money. Your views on that?

Arindam Ghosh: One needs to look at both the global as well as the domestic factors. Obviously, the global environment today looks benign but the markets will clearly remain sensitive to the issue of the US shutdown as well as on the issue of the US debt ceiling.

Our view is that whilst the probability of default is not zero, and a resolution is the most likely outcome; however, we need to be mindful of the risk.

As long as the stand-off between the democrats and republicans continue, we will continue to see the rhetorics and the theatrics which will keep the markets on the edge. On the domestic front, we have seen a lot of improvements starting to happen on the margin. However, the US deals which have been drifting lower has actually been emerging as market risk positive.

In a situation where resolution happens, we may again see the tilt starting to favour developed markets. That would see more sell-off or reversal of flows from the emerging markets back into the DM. Hence, we need to mindful of the risk though we are in a relatively benign environment.

The good news is that the tapering, at least for the month of October, is off the table. That comes in as a big relief, and the fact that domestically we have been able to now stabilise rupee.

We have been able to get very strong and positive conviction from the policymakers that the twin deficit is going to be contained. Overall, the good news is that the kind of excessive pessimism that we had seen in the past is getting lifted. We may, thus, actually slip into the trap of getting extremely pessimist if some of the earnings downgrades. That would again get us into a sense that growth is going to get extended, or the capex cycle is going to take a long time to recover. However, we need to also look at some of the improvements that have been actually happening at the margin.