"India story is not as compelling as was the case probably a few years ago. The risk of stance that is currently on in the developed markets has led to that dramatic outperformance of the developed markets versus emerging markets," observed UR Bhat of Dalton Capital Advisors.
Ben Bernanke's recent comments that US may taper off the quantitative easing by year end would also restrict this easy money from flowing to emerging market.
Also read: Global mkts in selling exhaustion mode; Nifty may fall 3-5%
He expects FII flows to taper going forward as developed markets like US and Europe are likely to bounce back. Given the unprecedented fall in rupee, now Reserve Bank of India is also unlikely to extend any further rate cuts.
"It does not look like as if they (RBI) is in a great mood to cut interest rates anymore and since the last statement the rupee has collapsed. Therefore, there is absolutely no case for forfeiting interest rates anymore," Bhat stressed.
Below is the verbatim transcript of his outlook on the markets:
All of us expected in the early 90s foreign institutional investors (FIIs) have come to dominate the market. They are the ones who give direction to the market and therefore in a manner of speaking we have become as a nation hostage to those inflows, the market has become hostage to those inflows. As you all know, high trade in current account imbalances have been one of the causes of the foreign institutional investors taking a slightly dim view about how things are panning out here. Of course the precipitous decline in the rupee is something that will make everybody nervous including foreign investors because if you see year-to-date (YTD), foreign investors even after this billion dollar that has gone out over the last couple of weeks have brought in about USD 14 billion in this country and this USD 14 billion has produced a dollar return of something like minus 12-13 percent, which means that we increasingly require more and more foreign institutional investors money for the market to even stay where it is.
So I think declining rupee is one thing that can shake the confidence of big investors and that is probably taking a toll today. The cause of the plunging rupee we have come to a situation where all of us were expecting in fact at least the government was expecting all the time that Reserve Bank of India (RBI) will keep cutting interest rates. With the state of the rupee today, I do not think that looks like a distinct possibility. Therefore there might be further danger for foreign debt investments in India to leave the shores even further because as I said, only just about under 10 percent of money has gone out and these are the consequences.
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