After the US Federal Reserve’s much-awaited announcement on stimulus, all eyes are now on the Reserve Bank of India’s monetary policy review on Friday. Broking agency Angel Broking’s Managing Director (Institutions) Lalit Thakkar expects positive moves from the Central Bank. He also feels that the Sensex could see another 10 per cent surge in a next couple of months. Excerpts from an interview with Business Line :
Benchmark Sensex and Nifty are rising again. With the Fed stand on quantitative easing, what kind of trend do you see in the coming days?
I believe that the benchmark indices would continue to remain resilient with high weightage to IT, defensive stocks and private banks. Hence, we continue to be ahead of consensus with regard to the Sensex EPS. I believe that in the next few months, we may see another 10 per cent upside on the Sensex.
As far as the broader market is concerned, there are macro worries, such as rising inflation and low growth.
But, at the same time, the Fed move gives headroom to countries such as India. The RBI has shown an interesting and clever policy initiative recently.
If the rupee worries do dissipate, as exports continue to rise, the RBI may be able to provide a more growth-supportive policy environment in the coming weeks and months.
Has the market discounted the possibility of no rate-cut in Friday RBI meet?
The US Fed’s surprise positive announcement of no tapering and its consequent impact on the rupee are likely to give more headroom to RBI. The recent high wholesale price index readings are unlikely to provide the RBI comfort on the inflation front, but that would not justify keeping short-term rates 300 bps (basis points) higher, as the increase was to defend the rupee, the need for which has evidently reduced. So, we may see some positive moves from the RBI as well.
What do you see as big positives and negatives for in the next six months?
Clearly, signs of improvement are coming from double-digit export growth combined with the Government’s success in curtailing gold imports. I expect a meaningfully lower trade deficit number, which was one of the key negative factors for the rupee.
In fact, if exports continue at the current run-rate, then the current account deficit is likely to settle at a far more comforting 2.6 per cent of GDP in terms of the monthly run-rate.
The recent strengthening of the rupee is a positive and stability in the exchange rate would eventually give headroom to the RBI to start rolling back its rate.
On the negatives, ultimately if the Fed decides to taper, say, three-six months later, worries of capital outflows may come back. I also believe that at present the political overhang is weighing on investment sentiments, but I expect a revival in the capex cycle after the elections.
Which sectors do you feel will have positive bias and which sectors should be avoided?
I’m positive on more sectors, unlike a couple of months ago. These include not just IT and pharma, but also metals. At present, it makes sense to focus on relative stock selection within sectors rather than shunning sectors altogether. For instance, even in banking, we continue to like private banks for their structural outlook and better asset quality. We are cautious on public sector banks.