Will India retain its status as the shining star in 2016? In an interview to Bloomberg TV India, JPMorgan AMC’s head of Asia Pacific Asset Allocation Ayaz Ebrahim says India is a very good medium- to long-term story.

The markets clearly seem to be moving with expectations that there will be a Fed rate hike in the next couple of days. If they don’t, will it be a much bigger negative than the actual action itself?

I think, one of the things that the markets like is certainty and the opposite of that is markets don’t like uncertainty. I think the expectation today is that they (Fed) will raise rates. And if they don’t, I think that will make the markets a bit nervous because the markets will say — well, what does the Fed know that we don’t know?

But, I think importantly linked with that is the fact that they are raising rates means they are getting more comfortable with the US economy. And what that means is that if we got growth in the US going into 2016 and beyond, the growth will hopefully spread out gradually to the rest of the world, especially Asia.

We will see more exports into the US market, which will be good for earnings throughout the US and Asia and other parts of the globe. Certainly, our base case scenario is that we expect the US interest rates to rise significantly over 2016. We may see a gradual rise and that gradual rise will be underpinned by a gradual continuous improvement in the US economy, which has to be good news.

What do you make of the fall in commodity prices that we have seen and what is your outlook there?

Yes, what I think with commodities in general is that we have had a super cycle and the unwinding of any super cycle will take some time. We don’t believe that commodities are going to spike up next year by any means. However, that doesn’t mean that prices couldn’t stabilise. Perhaps, they will stabilise. We probably need to see some capacity still being taken out. But our expectations are that we are not going to see any sharp rise in commodities in the near future. Oil has come down a lot as well.

And again our expectation is although oil may gradually again pick up, we don’t expect a super rise in those prices either.

But again, putting into the Asian context and again also in Indian context, the lower the commodity prices, oil specifically, the more positive the impact on the region. Let us just take India as an example. It supplies to other places in Asia and some other countries across the world. Lower oil prices mean a better current account deficit, better fiscal balance and lower inflation.

What that means is that you see a greater stabilisation of the rupee, you see inflation coming down and therefore possibly more monetary easing by the RBI. And a better fiscal balance means that money can be diverted into other areas such as infrastructure spending.

This is India as an example but this can be applied to other places across Asia as well. So lower oil prices, we firmly believe, actually put more money into the consumer’s hands, at the lowest cost of production and overall that’s actually beneficial for places in Asia because Asia is a net importer of oil.

What kind of impact will divergent monetary policies have when we talk about central banks across the globe?

I think overall liquidity is going to remain fairly accommodative. I completely agree with you that Europe and Japan will still be easing. But bear in mind, as I mentioned earlier on about the US, we really don’t see significant tightening by the US Fed either. So I think globally the liquidity situation will remain accommodative, which is probably correct.

Because, as I mentioned earlier on, we do believe that the world is going to get better. But we are certainly not seeing everything firing on all cylinders, we are not seeing a sharp improvement in growth and therefore this environment of looser monetary policy and a looser environment are still probably correct. Europe and Japan, by the numbers that are coming out, certainly will be in more aggressive policies than the US. And the US obviously are on the tightening stance and hopefully this will improve their economies as well and we see a stronger picture into the latter part of 2016 and into 2017. But certainly we will see some divergences in interest rate policy and probably for now at least, in the shorter term probably, continued US dollar strength.

Is there room for RBI to cut rates in the New Year?

If you look at inflation, which has been easing and will ease further, with global issues like oil and commodity prices, there is some manoeuvrability in terms of interest rates. A lot will depend on inherent growth.

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