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Bank of America Merrill Lynch (BofAML) expects the Reserve Bank of India Governor Raghuram Rajan to cut policy rates by 25 basis points on June 2, the next scheduled policy review meeting.
After the June 2 meeting, the central bank is expected to pause to allow markets to price in the US Federal Reserve’s rate hike expected in September and then cut 50 basis points in early 2016, BofAML said in a new Investorspeak report.
“There is greater acceptance of our standing view that the turn in the growth cycle will depend far more on the global economic cycle and lending rate cuts at home rather than reforms,” Indranil Sen Gupta, India Economist, BofAML, said in the report, after meeting equities investors in New York and Boston last week.
While almost all equity investors in Boston and New York are overweight Indian equities, there are “indubitably” concerns that “nothing is really changing on the ground”, the report highlighted.
Banks, rate-sensitive and pharma stocks remain favourites.
BofAML continues to advise investors to focus on reserve money and, by extension, lending rate cuts to track greenshoots.
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