Don't fall for declining rates, says Citi

It may be a while before the fall translates into a sustainable run-up

Falling rates are not an immediate buy signal for equities, and it may be a while yet before they translate into a sustainable run-up.

India’s markets and the economy still have an overhang of policy related problems as well as issues related to earnings, leverage and demand, according to an India Equity Strategy report from Citigroup Global Markets.

“…History suggests….when rates first fall, equities pick up…rates fall further, equities fall…rates fall further, equities move up/down within a band…just before the last rate drop in rates, the bull run begins,” said the report dated 23rd May and authored by Aditya Narain and Jitender Tokas.

Citi believes that Indian equities are currently in a wait-and watch period when rates fall and markets tend to trade in a band.

It suggests that investors should not chase the market, instead they should stay selective and remain patient.

The report drew an interesting parallel between falling for rates and falling in love.

 “Falling rates are like the first time you fell for someone — It might have worked out really well. But chances are you did much better a later time - when you played it a little cool, did not rush things and had slightly more realistic expectations. That’s how you should play this Indian market,” it said.

Citi has maintained a Sensex target of 20,800 for December 2013.