One cannot be a pessimist knowing that most shocks have been managed with speedy action by policy makers, Akshay Gupta, MD & CEO, Peerless Fund Management, tells Puneet Wadhwa. Edited excerpts:
What is a realistic assessment of how much the Reserve Bank of India (RBI) can slash rates in the upcoming review and in FY13, given the index of industrial production (IIP) figures and the wholesale price index (WPI) data for May?
Lower GDP (gross domestic product) and more recently lower industrial growth have highlighted the issue of having lower interest rates. One needs to address the credit growth without fuelling inflation, which is a larger concern at the domestic level. Thus, RBI would not have much leeway unless the sticky inflation comes down. For FY13, we can expect a 50-100-basis point reduction in reserve ratios and a similar cut in repo, if inflation falls further.
Would you be a buyer in rate-sensitive stocks at current levels? What is your strategy at Peerless now? Which sectors/stocks are you overweight and underweight on?
The markets have been challenging in such an uncertain global and domestic scenario. We believe in companies which can endure all cycles with high return on equities. Reversal of the rate cycle has begun. Short-term interest rates have fallen over three per cent from the highs reached in March. We are higher-weight on rate-sensitives and believe domestic themes like consumption and investments would give decent opportunities over the long run. Apart from banking and finance, we like sectors which relate to capital goods, technology, FMCG and automobiles.
It has been a news-heavy week with developments across the Euro zone and China, key economic data at the domestic level and statements from S&P. What is your assessment of these developments?
News flow from the Euro zone is critical for the markets. Currently, the key concern is of contagion spreading to countries not in the consideration list. Add to that the extent of unknown damage in the financial systems of the existing names, which will make the markets jittery.
The Greek election over the weekend will decide whether the austerity plan suggested by the European Union is an acceptable proposition for Greece. The expected Chinese slowdown is adding fears to lower global growth. Moreover, the below-normal domestic macro numbers has led S&P to make a statement about India facing the risk of losing Investment-grade rating. While these concerns are for real, too much of negativity is built around it. One cannot be a pessimist knowing well that most recent shocks have been skillfully managed by speedy action by influential policy makers. Disintegration of the Euro zone or a crisis in the financial system can hardly be afforded by any country, however strong.