The expected interest rate increase by the US Federal Reserve will be a once-in-a-lifetime event and it’s difficult to comprehend how it will play out, says Hitendra Dave, head, global markets, HSBC India. He tells Samie Modak investors are giving a long rope to India, which remains a bright spot, thanks to its economy and political leadership. Edited excerpts:

What’s the outlook in terms of interest rate cuts by the Reserve Bank?

The number one data point which will determine where our rates go is inflation. The main thing for me is the how much it undershoots the glide path. We were supposed to be eight per cent in January but were 300 basis points (bps) lower. There is likely to be downward pressure on prices. The market consensus is currently 25-50 bps. The belief is inflation will not trend below five per cent. I think there isn’t a reason why it can’t be significantly lower. The underlying economic activity, growth plans and capital expenditure plans all are extremely weak, as is pricing power. The pace of deflation is catching a lot of people by surprise and it is not over yet.

Do you think the stock markets are overheated, as earnings are not growing?

Most of the corporate results don’t reflect the kind of buoyancy the stock market valuations reflect but you have to see the big picture. People are giving us a long rope. In that time, we have to fix our balance sheet issues. If the situation remains unchanged in the next 12-18 months, there definitely is a problem.

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