In an interview with CNBC-TV18's Nigel D'Souza and Reema Tendulkar, James Glassman, Senior Economist at JPMorgan Chase Bank shares his outlook on the mood in global equity markets and
"Equity markets don't grow in a straight line forever and this is fairly modest correction actually not even a correction", he adds.
Below is the verbatim transcript of the interview:
Q: It is a sharp sell-off that we have seen in global equities, what is the mood now and is the market gracing themselves for a bigger correction?
A: I think so because during the weekend, there was a fear that Federal Reserve is beginning to change the story and talk about interest rates but the truth is these markets have been very strong. Equity markets don't grow in a straight line forever and this is fairly modest correction actually not even a correction. So I don't thing much is changed and I think what we are learning from the US is that the US economy is doing fine, there is no reason to be worried about the Federal Reserve yet. The market thinks the Fed will start raising interest rates sometime next year if the economy is strong enough. So I think in general, the outlook that caused for the developed economies to continue to recover from their recessions is still in place, inflation is very low and those are the things that have been driving every market but particularly in the context of the geopolitical worries we have had, you cannot be too surprised that the equity market has a bit of a setback. I think it is just a normal correction in what has been a very good run and should be. The problem is these markets are not cheap anymore. So you wouldn't be surprised if the momentum slows down.
Q: Taking that point forward with regard to how the Federal Reserve is going to go ahead and whether or not they are going to raise the interest rates - you were not in the camp that believe that in fact they are going to raise it anytime soon, so when are you factoring in that they will take the plunge and go ahead and hike interest rates?
A: It is probably not till this time next year but that is so far away and so much can happen between now and then. But I personally think there is still a fair amount of unemployment in the US, much of it is not measured and that is what Janet Yellen and the Federal Reserve has been focused on and they are still taking their cue from the underlying wage trends and inflation trends and as long as you don't see unemployment, it looks like it is coming down and it may look like that the labour market is tightening but if you don't see wage trends picking up, that tells you there is still room for growth.
So I personally don't think we will see this till late next year. I wouldn't be shocked if it is a little later than that and I think what is interesting is the market pricing - if you look at the futures market, the market is more dovish than the Federal Reserve by even the Federal Reserve. So the market thinks that this is going to start sometime late next year but there will be more gradual. So it is still far away to figure this out. Honestly, I don't worry much about this. I think the Federal Reserve will raise when it is time and I wouldn't worry about it, I don't think it will do a damage to the economic outlook.
Q: You touched base with us even a month ago and you were talking about various initiatives that the Indian government will take to spur growth - are you satisfied with what you are seeing because our markets are looking quite nervous, so do you expect us to turn back to those 7-8 percent gross domestic product (GDP) that we have seen over the past few years?
A: It is a cautious start but I think that there is a good chance. I am becoming much more optimistic about the outlook for India and I think these things don't happen overnight, they take time but I think the focus on infrastructure investment is very big thing to opening up the growth prospects and I think the government understands that. So, I think you have to be patient because to me this is a significant outcome, the election. It sends strong signals, I am sure there is more things to come, it just takes time.
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