Mumbai terror to impact capital flows: Mark Konyn

Mark Konyn, CEO, RCM, a company of Allianz Global Investors, said investor sentiment will be hit in the short-term because of the Mumbai terror strikes. "Since foreigners have been targeted, it might have a dampening effect on tourism. The overall perception towards India will be hit and international capital flows will be under significant pressure."

 

Here is a verbatim transcript of the exclusive interview with Mark Konyn on CNBC-TV18. Also watch the accompanying video.

 

Q: Give us a word on the kind of terror attacks you have been hearing of and reading about in Mumbai and whether you think that is going to make any medium-term impact or long-term impact on FII sentiment?

 

A: Certainly, and the world has been shocked by the images that we have been getting out of Mumbai.

 

Typically, when we have seen similar outrages in other parts of the world, it does immediately hit investor sentiment but depending on how quickly things get back to normal, it proves to be typically quite short lived.

 

The worrying aspect here is that uncharacteristically these attacks and outrages have been targeted directly at foreigners and venue sites which are frequented by foreigners in Mumbai. So, I think that is one aspect that foreign visitors and travellers will be looking at.

 

It may have a dampening effect in terms of how quickly international investors come back into the market. Of course, most international investors have pulled back significantly this year in any event with some USD 13.5 billion or so already withdrawn from the Indian market.

 

Q: Relatively speaking, in a world which is just basically trying to get back on its feet in terms of liquidity, do you think it puts India to relative disadvantage or do you think that would be overstating the case?

 

A: It clearly is not going to help overall perception and risk appetite, but it is difficult to assess in these types of situations. However, in any event, international capital flows, we are talking about the equity markets, are already under significant pressure. We have got the threat of deflation now as a result of all this deleverage which is at play in global markets.

 

We have seen central banks internationally trying to throw a lot of money at the problem, trying to improve liquidity, certainly take positions from the government’s perspective to improve solvency and the net effect is quite marginal. This is because of the tremendous amount of leverage that was built up in the financial system particularly in the United States; it is starting to unwind. So as liquidity looks like it is improving, corporations, individuals, financial institutions, in particular, are taking the opportunity to try and draw down some of that debt and reduce their obligations.

 

The net result is that we are not seeing any flow through in terms of confidence, in terms of the way the banks are lending to each other and to end-users and the way in which credit markets are behaving generally.

 

So without that improvement, international capital flows are going to be pretty scarce over the next six months, we would estimate. Thus, in that environment, emerging markets generally don’t perform well and as we know, the Indian economy has been quite extensively dependent at the margin on international fund flow.

 

So, clearly they are going to be lacking anyway. To what extent this outrage that we have seen over the last few days in India has an impact that remains to be seen but one would expect it not really to disrupt the picture too significantly and certainly not longer-term. We wouldn’t expect to see any disruption. The issue really remains how quickly can the world economy get back on its feet.