StanChart AMC see rate cut in H2 CY08

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Naval Bir Kumar , MD, Standard Chartered Asset Management said it is not yet time to jump into equities. He told CNBC-TV18 that if inflation tends to ease off in May and growth continues to become a concern, there could be interest rate cuts towards the second half of 2008.            

 

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

  

Q: What is the recommendation now from StanChart? Would it be largely going into debt? Is this a time to jump into equities?

 

A: It is not yet time to jump into equities. One is getting much better valuations on the markets. But on the fixed income side, one has got a frontloaded borrowing calendar over the first two-months.

 

There is also a fair degree of common spending that tends to happen during that period. So, while this time there aren't very large redemptions, we have always seen April-May being an easy money market period for the economy. That is why one has got a frontloaded calendar this time around.

 

We don't see that having an impact on yields per se. The bigger fear continues to come out of inflation and how the Reserve Bank is going to tackle the problems of slowing growth and higher inflation.

 

To some extent, a lot of impetus to inflation is given by depreciation of the rupee that happened over the last two-months, increases in base metal prices, increase in oil prices and in primary goods. The effect should start wearing-off by April-May.

 

So, if inflation tends to ease off in May and growth continues to become a concern, we could see interest rate cuts towards the second half of the calendar year in 2008.           

 

Q: Would you go into debt right now or would you wait for after the credit policy?

 

A: Not necessarily. I would not buy long-term bonds yet, but the time to start buying long-term bonds is not very far away. Let the government borrowing programme start and let the market get hit by that flood of supply.

 

There may be a little bit of mistime between when the supply starts hitting the market and when the government spending starts and one could get a spike. So, if one gets 10-year old at over 8% yields, that will be a good time to start buying into long-term bonds.   

 

Q: What is your call if you were to enter equities at this point in time? How would you play it sectorally?

 

A: We are currently going through a period where nearly every stock market in the world has breached its 200-day moving average (DMA). So, it's not an individual case of a particular stock market showing weakness but a case of global weakness.

 

It is quite clearly driven by slowing global growth. We are seeing signs of that beginning to happen in India. So, you have got the equity markets correcting and certain amount of wealth effect impacted. Given the fact that very few Indians are exposed to the stock market, very little Employee Stock Ownership Plans (ESOPs) and no retirement money in equities - the impact is muted.

 

If this extends into the real estate market, then the larger impact of the wealth effect gets impacted. You have got consumption already impacted to some extent because of the shortage of retail credit. So our belief is, you are moving into a period of slow growth and I would clearly want to see earnings profiles of companies, in the next two-quarters, to make a call on the right time to buy equities.

 

You are getting a valuation correction. So, that is the positive side. But you are basing that on past estimates of earnings. I am not sure how much the past estimates of earnings will continue to hold.     

 

Q: What percentage of your funds would be in cash?

 

A: It is different across different funds. The newer funds that we closed last month are predominantly still in cash. The older funds have different levels of cash ranging from between 7-8% to 20% odd.