Amid speculations of Fed rate hike, global markets are in turmoil. Bloomberg TV India discusses the after-effects of the Fed decision and its impact on the Indian market with Ridham Desai, MD & Head of India Research, Morgan Stanley.

We are counting down to that big Fed event — the global cue everyone is watching for. How critical is it going to be?

I think it is not about what the Fed does because it is unlikely that they will actually raise rates. I think it is more about what they say. I have a feeling that they will actually sound hawkish, which the markets may not particularly enjoy outside India. Actually, India will want the Fed to hike. Given our macro stability, we want the world’s largest Central Bank to tell us that they think the US growth is okay and they are not so unduly worried about the pressure from China and that they are going to hike. So, as far as India is concerned, I think it is in a good position to be, at least on a relative basis. But of course, if the Fed sounds cautious and does not hike, then you can expect a bigger rally in stocks in the short run. And India will participate. Even if it under-performs, it will still participate.

What happens if we were to get a surprise hike coming in? It might once again give signals contrary to what the Fed has been saying for the last few months.

I slightly disagree there because actually, last month’s minutes did highlight the pressure from international sources. They did mention how the US dollar rise is striking financial conditions which, I think, actually caused the futures in the US to push the rate hike expectations from September to December.

So it is still likely a December event which is in fact Morgan Stanley’s forecast. And we are not saying it is the last one. What I feel when I talk to investors is that whether it is September or December, that is a last one for a while to come. And I think that is where the difference lies. Second, is that indeed the Fed acknowledges the pressure that is coming on the US’ financial conditions because of a rising dollar. But at the same time, they also recognise that there is deflation pressure that is incessant and is keeping them away from their inflation target. But the labour market is tightening. So it is all a mixed bag. It is not an enviable position to be the Fed chairperson. And I think it is going to be a hard one for her to actually crawl, whether it is September or December. Even in December, I don’t think it is going to actually look so clear. And it is almost going to be a great relief for the markets as well as for the Fed to be behind that first rate hike. You will actually get a relief rally.

You said it might be a bit of relief for India to hear that things are in tacit terms of growth as our macros look good. From where we are sitting, things don’t seem to be really picking up. Inflation has cooled off, everyone’s calling out for that rate cut, which has still not happened, and growth hasn’t yet accelerated. Is it reassuring for you considering your fairly bullish stance?

We should not dissociate ourselves from what is happening in the world. There is a huge drag coming in from the global growth slowdown. You can see that from the export numbers on Tuesday. Even though, the terms of trade have shifted in India’s favour, which is reflected in our inflation data and growth data.

The drag from the rest of the world is quite intense and we are fighting hard against them and I think we are doing okay. You look at the lot of scattered indicators that we track like car sales, capex data. They all are coming up.

If you look at the five drivers of the economy, we could summarise as: Government capex is strong, private consumption is strong, private capex is mixed, sketchy and is largely weak and exports is very weak. So I think wherever we can control, we are doing a fair job.

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