The Hindu Business Line : Guarded reaction from MFs, brokers

All the key rates were left unchanged by the RBI in Tuesday’s monetary policy announcement. This was against the backdrop of a 75 basis points rate cut by the US Federal Reserve recently on account of concerns of a slowdown in the US economy.

Mutual funds and brokerages appeared to show a conservative appreciation of RBI’s move, though. “Most of the rate-sensitive sectors, including those which went up on Monday anticipating a rate cut, have given up their gains of Monday. But we continue to like banks as their fundamentals remain strong, irrespective of any rate cut or not,” said Mr Sunil Godhwani, CEO & MD, Religare Enterprises. Investors’ buying decisions should be based on fundamentals and not on any event, he added.

Corporate spreads

“The market discounted expectations of a 25 basis point rate cut by the RBI in today’s policy, in the short term, the equity and debt markets are disappointed,” said Mr Sujan Hazra, Chief Economist, Anand Rathi Securities.

“The banks, auto, realty and consumer-related sectors will be negatively impacted.”

“The RBI has indicated its awareness of risks in the global economy and the willingness to act if need be. We believe that the balance of factors indicate that the next move will be a rate cut and we recommend that investors who have a 6-12 months perspective should invest in income funds as they will gain both from lower yields and shrinking corporate spreads,” said Mr Riteshkumar Jain, Head Fixed Income, Principal PNB AMC.

However, the Chief Investment Officer at a leading mutual fund house said that the trickle down effect of the policy needs to be seen before commenting on the policy.

Global uncertainties

“Given the uncertainty surrounding the global markets and economies at the moment, most other courses of action are fraught with risk. While preferring to leave policy rates unchanged at the moment, the RBI policy statement has retained the option of mid-course corrections in coming days, if needed,” said Mr Rajiv Shastri, Head-Business Development & Strategic Initiatives at Lotus India Mutual Fund.

The RBI has been focusing more on protecting the domestic economy from shocks and bubbles originating outside, felt brokers. But there was still a feeling that a rate cut is imminent, though further down the line.

“This policy may be seen in that context; with the RBI preferring to wait for more information, retaining the flexibility it may need to react quickly,” Mr Shastri said adding that growing global uncertainties ensure that this could also mean lower rates in coming days.

“Clearly, the central bank does not believe that the turmoil in global financial markets will have a significant impact on domestic growth in the immediate future,” Mr Prashant Singh, Fund Manager-Fixed Income, ING Investment Management India, said.

Cautious stance

“We believe, overall, economic indicators (including slowing IIP and credit growth) point towards an imminent softening of interest rates in the economy – the neutral policy may provide the cue to banks to begin reducing interest rates, starting with deposit rate cuts,” said Mr Hitesh Agrawal-Head of Research at Angel Broking.

Even Mr Sunil Mehta, Country Head and CEO, AIG-India, felt that the RBI policy announced today was in line with his expectations; he said he welcomed the RBI’s cautious stance on managing inflation.

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