BackInflation, bad monsoon continue to be key investment themes
Inflation, bad monsoon continue to be key investment themes
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Mumbai: On Tuesday, the Reserve Bank of India (RBI) in its quarterly review of monetary policy signalled a hawkish stance. The central bank raised its inflation forecast, expressed concerns on rising food prices and increased the portion of deposits which banks have to compulsorily invest in government bonds. The review happened in the middle of a week when the Sensex fell 5.4%. Mint spoke to S. Naren, chief investment officer of ICICI Prudential Asset Management Co. Ltd, which manages some Rs80,000 crore, on the impact of the policy on stocks. Edited excerpts:
How is the market viewing RBI’s latest monetary policy review?
As far as the RBI policy is concerned, there’s nothing wrong from the equity markets point of view. In 2006 and 2007, RBI took action which was perceived by the equity markets to be negative in the near term and, finally, in 2008, it was proved that those actions actually helped the country, the stock market and corporates. There was nothing in this policy which we felt was negative for the equity market as such.
Isn’t this rally liquidity-fuelled? Won’t a tightening of rates have an adverse effect?
People are mixing the market fall with RBI’s credit policy. We’ve had a market rally without a correction over months. Today, there is a simple trend. It puts us in a situation where we cannot guess the market in the near term—which is that at one point of time, the dollar will weaken and all global markets will go up. At another point of time, the dollar will strengthen and all global markets and commodity markets will come down. All this is a global phenomenon. And look, if we have a one-sided market, it promulgates risk-taking, which is not safe.
What are the themes you see playing out?
The theme has been—for one, the Reserve Bank is aware and they have increased the inflation target. Everyone now understands that WPI (Wholesale Price Index) inflation will go up.
A second theme which will play out is that the monsoon has been bad for the kharif season, and due to that there is going to be a negative impact on rice production, for example. These things will have a small impact on the economy over the next six months.
Third is that if the economy improves, there is a clear case for the fiscal stimulus to be cut. For example, there was a reduction in excise duty. If things go back to normal, the government will look at increasing this duty. What we are not in control of, including policymakers, is whether the dollar depreciates further, crude oil goes up to $100…
Keeping these things in mind, which are the sectors you see doing well?
At this time, we’d say that the telecom industry is one where we are comfortable. A lot of the negative news has already been priced in. The software industry is seeing superb results and if a trend happens where the dollar rallies against global currencies and commodities comes down, then technology will be another sector which would do well.
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