Oxygen Gas Plant India

Q: How much worse can it get for the Indian markets? Are we going to see lot of panic because of the herd mentality?

A: I think markets are slowly getting altitude sickness, lack of oxygen. We saw the Greek crisis, we saw deleveraging set in, we saw commodity prices retch it up, we saw interest rates being hiked in emerging markets and in every such incidence we saw markets correct and doomsday analysis prevail. Only for the market to acclimatized to the new risk factor in the economy, and be propelled forward by excess liquidity. Hence what we have seen is asset prices hold up over the last year because of excess liquidity.

When I look at the downgrade of the US market, the risk of that move will force interest rates in the US to go up, it will hurt consumption, it will make household incomes that much more unbearable, especially in an economy suffering high unemployment and low growth.

But on the other hand, I am seeing no visible signs of interest rates going up as a response to the downgrade. The ECB is saying that when Italian bonds and Spanish bonds yields rise, then they will come in and buy large quantum of them. I am very confident that if there is even a marginal move up in interest rates, the Fed will come in and aggressively buy treasuries.

So on one hand you have fiscal consolidation happening, on the other hand you have a risk of monetary stimulus continuing unabated and hence global liquidity continuing to remain high.

So we are going to go through a period of low global growth as countries are forced to carefully relook their fiscal positions, but we may not go through a period of liquidity withdrawn so easily. I think that is where we are. I think markets like India which are very sustainable markets, with strong domestic growth, not such large linkages to the external economy could actually do well because that excess liquidity is going to continue to change growth wherever it sees.