In an interview to CNBC-TV18, Nick Parsons of National Australia Bank says it is important to look at the currency performance for any economy because that is the real barometer of sentiment and not the equity market performance.
Looking at the stable performance of the rupee, the FIIs are cautiously optimistic on India.
Rupee has been stable around 60/USD mark . "That stability is seen very positive because when you look at all the electoral and political uncertainties that could possibly have caused sentiment to wobble, nervousness to increase and all those things but the rupee has been rock," he adds.
He strongly believes that concerns over Ukraine issue are no longer lingering ones but they are escalating concerns, and so despite better fundamental economic data from US the bond yields have not been pushing higher.
There are also concerns over corporate earnings that are offsetting the economic improvement.
Below is the transcript of Nick Parsons of National Australia Bank with Reema Tendulkar and Ekta Batra of CNBC-TV18.
Ekta: Your take on Ukrainian crisis and whether investors are now factoring in a formidable escalation in tensions?
A: I would suggest that it is increasingly being priced in by the bond markets. We have had strong data on both sides of the Atlantic Ocean, in the US, as well as in continental Europe and the United Kingdom.
However, strong data hasn't pushed bond yields up and the reasons for that is – it is not just lingering concerns over the Ukraine but escalating concerns and there are worries that this is going to end badly in terms of bloodshed and an escalation of conflict.
So, that being the case there are lot of uncertainties across asset classes not least energy, where Russia appears to be trying to force through some price rises through foreign trade, most notably with Germany baring the brunt of some of those sanctions because it is Russia's largest trading partner in Europe. There is also an air of real uncertainty surrounding the Ukrainian situation.
So, better fundamental economic news but it is not pushing bond yields higher or risk assets because of those worries about Ukraine.
Reema: What do you make of how the US markets are performing? Any potential bad news whether it is the Ukraine crisis, it seems to have a shelf life of only one day and after that you see the markets heading back again and every dip being bought into?
A: There are two things to note here; one is the fact that there are substantial short positions it would seem in the US treasury market. So, people who are underweight relative to that benchmarks or outright short are looking for a pickup in activity - looking for a pickup in inflation, looking for the Fed to perhaps withdraw stimulus either at a greater pace or to tighten rates. The market is positioned for that. So when that happens, it's not the best surprise value.
However, it is not really pushing prices in the way that those people who have taken those positions would wish. So, market positioning in part explains it in the bond market and for equities we have still got concerns over corporate earnings that are offsetting the economic improvement.
It is already May 6 today, and yet for the 120 days that the market has been open this year the Dow Jones is down 0.2 for the year, the S&P is up just 1.9. We have spent a long time going absolutely nowhere. With all those uncertainties that you rightly point to, it is very difficult to see that investor's feel compelled or hurried or pressed to actually do anything with funds right now. So, it is a bit of a standoff I am afraid.
Ekta: The election date outcome is coming very close for the Indian markets. How are FIIs positioning themselves now and what are they thinking about India?
A: They are feeling very cautiously optimistic, most notably when they look at the currency. The currency is the big barometer of sentiment. I don't take equity market performance necessarily as the best judge of international opinion towards any economy whether it is India specifically, EMs more generally or anywhere in the western world or the northern hemisphere. Don't look at the equity market for a sense of what people are feeling about economic health, look at the currency.
If we look at it over the last month, the rupee has been pretty much stable. We have been on a 60- big figure at some point for every trading day since April. So, since the start of April it was only the very second of the month when we have spent all day on a 59 for dollar rupee. Every other day without exception it has traded on 60 figure. Now that stability is seen very positive because when you look at all the electoral and political uncertainties that could possibly have caused sentiment to wobble, nervousness to increase and all those things but the rupee has been rock. It has been a pillar of stability and that is very encouraging for when people come to look at the post election scenario, they will take encouragement from the price action that we have seen over the last month.
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