Interest rates may go up next year: DSP Merrill

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Interest rates may go up next year: DSP Merrill

As the Indian economy starts to recover, the Reserve Bank of India might look at reversing the interest rate cuts over the last year, said Mr Jyotivardhan Jaipuria, Managing Director and Head of Research (India) at DSP Merrill Lynch.

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Mumbai, Aug. 7

As the Indian economy starts to recover, the Reserve Bank of India might look at reversing the interest rate cuts over the last year, said Mr Jyotivardhan Jaipuria, Managing Director and Head of Research (India) at DSP Merrill Lynch .

"By April or June next year we can see some rate cuts as the economy would have started recovering by then. Interest rates here are close to bottom now. That will be when they will start focusing on inflation so that it does not go out of hand. Inflation will start rising by next year."

If the monsoon continues to play spoilsport there may be a cut in India's GDP ratings by 50-75 basis points.

DSP Merrill Lynch's latest weekly report says India's economy is expected to grow by 6.3 per cent in the current fiscal and 7.3 per cent in the next fiscal. "The monsoons are much lower than last year. This could lead to a fall in GDP. The Government will have to help out the farmers who will be affected by the weak monsoons by way of subsidies, which will put further pressure on our fiscal deficit," said Mr Jaipuria.

According to the report, CPI Inflation currently at a negative 1.5 per cent, is expected to rise to 0.8 per cent by the end of FY09 and 5.5 per cent in FY10.

On the other hand, the run up in the stock markets this time is backed by liquidity and earnings, which is a good thing, said Mr Jaipuria.

"Liquidity is good globally; money is being taken out of the US and being pumped into emerging markets. The valuations are not very high here."

Mr Stephen Corry, Director and Head of Investment Strategy at DSP Merrill Lynch, said one should look at investing in growth stocks in the emerging markets and in value names in the developed markets. "One should also look at high quality technology stocks and small-cap stocks in the emerging markets," added Mr Corry.

Taken from Business Line

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