SENSEX NIFTY
May 14, 2012, 05.32 PM IST | Source: CNBC-TV18

Inflation data to fuel bearish trend in market: PN Vijay

Portfolio manager PN Vijay says the worse-than-expected inflation number for April will further fuel the bearish trend for equities.

Despite the worse-than-expected inflation number for April, portfolio manager PN Vijay says that the central bank may continue with its easy money policy. “I do not think this additional piece of information is going to be that critical for Reserve Bank of India,” he said in an interview to CNBC-TV18.

Inflation spiked to 7.23% on the back of higher manufacturing and food inflation. Analysts on average had expected it around 6.7%.

Talking about the market’s reaction to these numbers, Vijay says this will further fuel the bearish trend for equities. “The mood of the market is now governed by trading activity, so we will follow the global pattern with a bit of blips depending on domestic factors,” he said.

Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video.

Q: Are stocks pricing in everything or are we going to see further downsides as the market comes to term with the fact that maybe another rate cut is now looking impossible?

A: Right now, this does add another additional factor for a bearish trend because everyone was expecting the core inflation to flatten out.

However, I do not think this additional piece of information is going to be that critical for Reserve Bank of India (RBI). Most central bankers around the world, especially China, are taking the view that spurring growth through spurring demand is the key requirement right now. So while I do appreciate that it’s difficult to think of RBI loosing up, they may continue an easy money policy.

The IIP was such a howler and the best way to hit yourself out of the crises is to stimulate demand domestically, which is not so difficult in India given the high level of consumption etc. It’s possible that RBI might just take it as one more thing, it may not be such a big difference.

Let’s forget that across the board tax increases were done on indirect taxes in the Budget and these have filtered through into this inflation figure.

Q: It seems like we have a sharper reaction to the macros which are coming out of India, for example inflation and the IIP figures on Friday. What does that tell you about the mood of the market and what is most important for us?

A: The mood of the market is now governed by trading activity. I would say that the investment activity is very little. There is hardly any institutional buying or selling; one day the FIIs buy a bit, the domestic sell a bit and visa versa. Mostly it is traders and trading seems to be very volatile, so reactions get accentuate considerably. This shows that the level of anxiety in the market is very high.

I come back to the point that after GAAR was removed in India, postponed by long time, Indian domestic issues are not so relevant for the trend of India. We will follow the global pattern with a bit of blips depending on domestic factors.

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