Tapering talks are back on the table again: Arindam Ghosh

In a chat with ET NOW, Arindam Ghosh, CEO, BlackRidge Capital Advisors, gives his outlook on US Fed's tapering plans and their repercurssions on emerging markets like India. Excerpts:



ET Now: Do you think that now the FII inflows are on a downtrend?

Arindam Ghosh: The downtrend seen yesterday in the FII inflows is in anticipation of the announcements that the FED was expected to make overnight. Now, since the FED has started conditioning the markets for the process of taper, whilst articulating its stand on maintaining a low interest rate regime for a longer period of time. Therefore, the taper talks are back on the table again.

ET Now: Do you think this was just a one-off event wherein the FII activity slowed down or do you think we could see FIIs actually reverse the flows?

Arindam Ghosh: The FII data over the last couple of weeks shows that the trend has actually been on the downside. Clearly, as we get into December, probably the FIIs would try to lighten up their positions. Therefore, one cannot rule out the possibility of some profit being taken off the table.

However, the point to bear in mind is, given the announcements from the FED, December is not a zero probability as far as tapering is concerned. The process of tapering may happen in a non-disruptive and calibrated manner, but despite that, even if there is a symbolic reduction, the repercussions on emerging markets can be quite significant.

In an environment where though the liquidity tap will still remain open, if the quantum of flows gets reduced, then domestic and local factors are going to hold the centrestage. Against that backdrop, India and other emerging markets will definitely see some volatility intensifying going forward in the next couple of quarters.


ET Now: Do you think the inability of the market to stay above crucial technical levels is a concern and somewhere do we have a top in place for this year?

Arindam Ghosh: In our view, the market has run up sharply from 5200 levels to about 6200 levels. Therefore, in an environment where liquidity could get reduced and is going to get tightened, there may definitely be some sharp reversal of flows. The only difference from a fundamental perspective is that, today probably the economy is better prepared than it was a couple of months back.

So, in a completely liquidity driven environment, technicals may not really hold. We will have to look at how the domestic economies, including the emerging markets, with their individual and local issues, are going to stack up.

We must remember that the other joker in the pack is China, with the announcement of some of the structural reforms that they have been articulating. So, in a China-India trade, there may be some rebalancing, which may actually even lead to sharper reversal and sell-offs as far as India is concerned.