It's been five years since the Fed hasn't been at its target of 2% inflation. Agents, consumers and businesses now are used to inflation which is at 3%, not at 2%. That's a worrying thing in this environment. If you have an oil shock which increases prices, even if they're headline prices, that's not very good for what's already priced in the market which are two rate cuts for the rest of this year.

I think it'll depend very much on how this oil shock continues. The war is ongoing. It's probably too early to say whether oil prices can come down quickly with the risk to the Strait of Hormuz. So many ships are caught inside and can't carry oil outside of the straits. Asia depends a lot on oil from the Middle East. Europe depends a lot on gas from Qatar and the Middle East. Both sides on oil and on gas, and especially in gas, we're seeing significantly higher prices. So it is going to be a challenge for inflation.

What's difficult for India is twofold from this crisis in the Middle East. One is the higher oil prices. India imports a lot of oil and just made a deal that it would buy less Russian oil so that means it's paying full price. So higher prices impact India directly through inflation and through deterioration of its current account. The second factor is that so many Indians, I think that 9 million Indians in the Middle East and they are big contributor to the remittances, which is an important part of inflows into India and a turmoil in the Middle East will affect India through that channel as well.

At the moment with the current uncertainty around the Gulf War and around oil prices not yet. Most emerging market equities have done very well, India has underperformed significantly year to date, and equities are down 6% or more in local currencies and 8.5% in dollar terms. So they do start to look attractive, but it's too early to get into Indian equities until the Gulf War situation stabilizes.