Status quo on repo rate to trigger mkts: Rel Money

Sudeep Bandyopadhyay, Director and CEO of Reliance Money feels that the market is watching out for government’s approach to reforms now. He hopes to see marginal disinvestments in some Public Sector Undertakings (PSUs). One may see some resistance to banking and insurance reforms, he said. The market is expecting 25 bps hike in repo rate in credit policy, Bandyopadhyay said. A status quo on repo rate would be a big trigger for the markets, he added.

According to Bandyopadhyay, institutions are sitting on cash and waiting for positive cues. He sees the international food prices coming down, which will cool inflation. The short positions in the market are not fully covered yet.

Excerpts from CNBC-TV18's exclusive interview with Sudeep Bandyopadhyay:

Q: What is your sense of what the market might have done over the medium-term, do you think it has put a base in place?

A: The market will be watching the steps of the government on the reform front; there is huge expectation amongst investors and market men that some steps would be taken by the government and I think that would be the key.

There are couple of ways the entire thing can be approached. There are few reforms on the agenda which requires the government to win one more round at the Parliament, but they may try and avoid that for the time being. However, there are lots of steps which they should be in a position to take without facing the Parliament; like disinvestment in some of the PSUs and here we are not talking about coming below 50%, there are lots of PSUs where they are holding 94%-84% etc and so 5-10% disinvestment there would not actually require anything. I don’t think the nature of the PSUs will change or it will be privatisation. However, these steps will be welcomed by the market and this will have positive impact on the exchequer and the entire deficit which we are accumulating because of the oil subsidy to an extent that can be handled if this disinvestment stake takes place.

Q: Which ones you think will be slightly more difficult to push through, the ones you eluded to which might require them to go back to Parliament?

A: If there is anything that would require the government to go back and take the approval of both the houses of the Parliament, would probably be a situation where they may again have to face lot of opposition like the banking reforms, the insurance opening up, although one is not sure whether they may require parliamentary approval once again and in case they do, they may try and avoid it for the time being till they come to grips with situation completely in the new scenario of the political alignments.

Whereas the other steps I talked about like the PSU disinvestment to an extent of 5-10% that doesn’t require anything else.

Q: Are you saying that the market might have entered into a period of better news flow and so, what kind of levels do you see it moving towards?

A: Market is waiting for some good news. Infact, there are two to three events which are going to happen next week; one is the credit policy and the poll which has been taken by Reuters and others indicate that everybody is expecting another 25 bps hike in the repo rate .

If the repo hike comes in then that has been factored in, but if it doesn’t come then that will be again a positive for the markets. The entire market is watching and waiting for the government to take steps on the reforms front and so any of this news coming in would be a trigger point.

What everybody clearly realises that Indian institutions, whether mutual funds or insurance companies, they are sitting on huge amounts of cash. They are waiting for the market to give positive cues before they start deploying. Any fund manager today is worried about the marked-to-market impact if he invests today and there is a dip tomorrow. So if the positive cues emerge and they consider it as a signal, I think the market will see lot of money coming into the market.

Q: What did you observe throughout last week - did you find any sense of confidence after the vote that people wanted to get back into equities or are they still getting in gingerly?

A: We have all seen the euphoria after the trust vote and people are expecting many positive steps from the government.

Internationally, oil has been sobering; with respect to food grains there is some problem as far as monsoon is concerned in the Western part of the country, but otherwise it has been decent. International food prices are expected to come down based on the production estimates of various food grains. So all this is giving some kind of positive signals. If you just leave aside the US financial crisis of the housing finance companies and mortgage companies, there is general positive news flow which has started, so I think we can look forward to better six months going forward compared to what we have seen in the last six months.

Q: What kind of average cash levels are you keeping around the 14,500-15,000 mark?

A: All the fund houses and institutions are sitting on a lot of cash and so the moment there is a positive cue, they would come to the market. Now that positive trigger probably would be some reforms. It may not to a great extent be linked to the Reserve Bank of India policy, but it would be a positive indication. 

Q: For the moment do you think most of the shorts in the system have got covered or are there still shorts lingering in the system?

A: I think there are still shorts in the market, people haven’t fully covered and a good indicator in this area would be next Thursday. 31 July would be the day when we will know what kind of positions have been taken for the next month.

Disclosures:

It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.