Unlike 2010, when rate hikes made RBS go underweight on India, Rambit Bhasin, the managing director and head of markets at RBS says it is a ‘different’ scenario today.
Unlike 2010, when rate hikes made RBS go underweight on India, Rambit Bhasin, the managing director and head of markets at RBS says it is a ‘different’ scenario today. “We are going out with the call, if this could be the last 25 bps or the last 50 bps. Therefore, the headwinds in banking sector could be behind us,” he says. Turning bullish on the banking sector, Bhasin also says it is one of the reasons why RBS thinks Nifty ‘will do better’.
Below is a transcript of Rambit Bhasin’s interview with CNBC-TV18. Also watch the accompanying video.
Q: What is that you expect from credit policy and from the rest of the year, in terms of tightening?
A: The RBS view is that we have 50 basis points still to come including the one this week. We think there will be 25 bps on this meeting and another 25 bps after that. This could be 25 bps, a pause and then the RBI would look at the data coming in both from the growth perspective as well as from the inflation perspective, in terms of commodity prices etc.
One of the catalysts for the Indian markets, going forward could be a sense that RBI is not to hold as many central banks have over the last few weeks. This could probably bode well for the Indian markets starting August-September of this year, once the transmission effects are starting to have being felt through.
Q: Both India-China have been tightening interest rates, is there any talk about where rates could peak out first?
A: We got the sense that it will be India first and it is quite apparent. We have seen a huge rally when you look at the OIS swaps in one year. We have had literally a 75 bps move in the last 2 weeks. What’s pricing in today in the markets is just 1 rate hike of 25 bps and tight liquidity conditions, going forward for the next three to four months. While in terms of China, we still think that there is more to come.
Q: How are you positioned on the banks stocks which usually take the brunt of more tightening?
A: Our favourite sector continues to be the banking sector. We are also turning very bullish on the Indian markets. We have underperformed on an MSCI basis by about 18% or so over the last six to eight months, therefore, probably Nifty has about 24% weight of financials in it.
When we look back in October-November 2010, we were just starting to go through the rate cycle hikes it was one of the thought processes, or one of the reasoning’s for us to have sold Nifty and gone underweight in it. Today it is completely the opposite. We are going out with the call that if this could be the last 25 bps or the last 50 bps, so the headwinds in banking sector could be behind. Therefore, we are turning bullish on the banking sector and that’s one of the reasons why we think Nifty will do better.
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