BoJ's rate stance along expected lines: Deutsche Bank

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Sandeep Dasgupta of Deutsche Bank believes that Bank of Japan's rate stance has been along expected lines. Dasgupta does not expect Bank of Japan to up rates before Q4CY06, early 2007.

According to him, retail flows from Japan have slowed down. He feels that Japanese investors are not in a hurry to up equity exposure.

Dasgupta is overweight on IT, capital goods, power and engineering sectors. However, he informs that the company has low exposure to midcaps.

Excerpts from CNBC-TV18's exclusive interview with Sandeep Dasgupta:

Q: Since you concentrate on flows that come in from Japan and the agenda that they have there, what is the view emerging on India in the context of post earnings and the crash, after May?

A: If you look at the market in Japan post May 12, it has fallen by about 6% as opposed to Indian markets, which fell by about 9% and Dow Jones' broad market Index, which fell by about 2.5%. So despite the economy, which was expected to do well; although the numbers, which appeared for June quarter was not so encouraging, Japan's market has not done too well. In my opinion, the retail flows, which was coming to India from Japan has slightly slowed down. The reason being that the risk appetite within the retail investor community has definitely gone down.

Q: Going ahead, will we have to get used to a lower liquidity with the Bank of Japan's move of hiking interest rates, which they did last time around? Is there a fair amount of ambiguity in the air even now?

A: I don't think there is too much of ambiguity as the rates have remained unchanged today. That was the expectation and given the fact that the voting was 9:0 in the Bank of Japan's supervisory committee, I don't think they would increase rates in a hurry. The economy too has not shown very encouraging numbers for this quarter and the US is likely to slow down a bit. I don't think rates will increase in a hurry, it won't happen before the end of Q4FY06 or early FY07.

Q: Do you think Japanese retail investors are getting a little shy of putting money into non-Japan emerging market space. They seemed very keen last year but because of a host of factors, are they becoming a little skittish about it?

A: I think it is more about sentiments. In general, if you look at Japanese investors, the appetite to increase their exposure to equity into slightly riskier markets like emerging markets including India was definitely high in the end of FY04 and also FY05. But beginning this year, given the fact that the valuations were stressed and what we saw in the month of May, the meltdown and the domestic markets were not doing too well in Japan as well in the last two and half months. I think the risk appetite has reduced so the propensity to increase their exposure to equity has definitely come down and that will impact markets like India as well.

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