Still unclear about next RBI move: StanChart AMC

Naval Bir Kumar, MD at Standard Chartered Asset Management is still unsure about what the RBI may do. "Quite clearly the inflation numbers should be disturbing; every Friday one sees a higher number - it causes concern in the market place and one expects immediate reaction. But so far, the noises that seem to be emanating both from MoF and the RBI are not alarmist and I am not so sure," he said.

Excerpts from CNBC-TV18’s exclusive interview with Naval Bir Kumar:

Q: What have you made of expectations from the credit policy after all that has happened. Are you pretty much sure that the CRR hike will come in there?

A: Not yet sure. Quite clearly the inflation numbers should be disturbing people in the Reserve Bank of India and the Ministry of Finance. Every Friday one sees a higher number - it causes concern in the market place and one expects immediate reaction. But so far, the noises seem to be emanating both from MoF (Ministry of Finance) and the RBI (Reserve Bank of India); are not alarmist and I am not so sure. We need liquidity in the system. But having said that, the other view is if you suck liquidity out at this point of time through a CRR hike, you could get the stated objective of showering up short-term rates dramatically, which could put a lid on inflationary expectation to some extent.

Q: What will the yield curve likely look like? Do you expect that the ten year could reach a quarter by the time you work towards the credit policy? When would you start buying bond?

A: If the ten-year yield were to start going upwards of 8.25%-8.30%, we would start beginning to get interested. But if it moves there because of inflation numbers, we would review. So if one starts seeing inflation at 8%-8.5% and that’s what’s taken yields up; we would not plunge in. But if it’s gone there because of the borrowing programme because of supply side, I think it will be good and inflation continues to hold. It maybe a good time to consider, taking a bit of punt on longer-term yields.

Q: What would you be advising clients. Would you say that it would be a good idea to get into fixed income funds or gilt funds by the end of April or early May or do you think that equities are offering value?  

A: I think they are two completely different asset classes. We are not encouraging people to punt between the two based on our short-term views on markets. I don’t think so - that’s how people end up making fair degree of wealth. The asset allocation story clearly pans out as far as I am concerned between two different assets classes. But within the fixed income asset class, if the ten-year yield goes upwards of 8.30-8.35 and it's not driven by inflationary expectations, we could start telling people – look at the longer-term income funds and not only at liquid funds and fixed maturity plans

(FMP); that could be a view within the debt-asset class.  

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