No logic in rate cut; rally to fizz out by Monday: JRG Sec

With the rupee under severe pressure, inflation still high and savings rate in the country falling, Tandon tells CNBC-TV18 that there is no logic behind the central bank cutting interest rates. “Logic has been replaced by hype rather than trying to figure out why one should be looking at an interest rate cut,” he said.

Tandon also holds a different view when it comes to the impact of a ‘Greexit’. He says Greece along with a few other European nations are on their way out of the eurozone, and that this will be positive for India in the long run. “You will have five more currencies, which means that there will be more money floating around, and that is bound to flow into India,” he explained.

For the near-term, however, Tandon says there could be some panic which could push equities lower, but advices buying during that downturn.

Don't miss: Can India curtail oil import bill?

Meanwhile, technical analyst Sudarshan Sukhani of s2analytics.com is against trading for the next three-four days because he expects the market to become choppy. “The trend is on the upside and we have positional long trades, but we have tightened our stops,” he said.

Sukhani expects the choppiness to continue and the volatility to increase as we go towards next week when there is a lot of news which you probably know better about.

Below is an edited transcript of the interview with Sonia Shenoy and Ekta Batra. Also watch the accompanying video.

Q: What is your mindset now with respect to the market after so much of pullback that we have seen and the talks of a 50 basis point rate cut etc?

A: The pullback I think is more a reaction of the fact that there is nothing now left to worry about atleast internally. Everything that could possibly go wrong has gone wrong, so even a little bit of buying will take the market up. However, in the last couple of days I think there is a false premise being built up that we have to absolutely ensure that RBI cuts the interest rate. Logic has been replaced by hype rather than trying to figure out why one should be looking at an interest rate cut.

The rupee is under severe pressure, but everyone is hoping for an interest rate cut; inflation is still rocking, but people hope for a cut. We have supply side constraints, we don’t have land to grow, we don’t have people who are willing to work at a reasonable wages and investments are down, but still, we should cut interest rates.

I just don’t understand the logic of everybody looking at interest rates and saying India has suddenly reduced its savings growth. Savings rate used to be 35-36% is now closer to 30%, but cutting interest rates will only penalize the saver even more. We have an amazing chorus that has gone together saying that the single point agenda on everybody’s mind is a cut in rates.

I see no logic for it, and if logic continues to determine RBI policy, you should not see an interest rate cut on Monday, in which case some of this fizz will move out.

Q: What are you expecting in terms of the Greek elections and what do you think will be the best case scenario for our market post the Greek elections? Will it be positive if they stay in the euro zone or exit the euro zone?

A: I don’t know if there is any alternative to Greek and many other parts of Europe actually moving out of euro zone; there is no euro zone any more. If attempts are continued to be made to keep euro zone as one area, Germany will start to feel increasing pressure. I think the German bonds yesterday already gave you an indication that if Germany was to become the economy which is going to backstop everything else in Europe, then Germany itself is going to pay a fairly high price.

Now the question is whether or not the banks are willing to take the hit. I think we will continue to make some more futile attempts like we just did in Spain to try and kick the can down the road, but I don’t see that making much of a difference going forward.

However, the difference is that while most people think that a breakup of euro zone will be bad for India, in my view that isn’t so. At the end of the day, what you are really looking for is cheap money to come back in. Despite attempts by government to keep money out through complete policy inaction, money will flow in if there is a heck of a lot of money floating around, which is exactly what's likely to happen if euro zone breaks up. You will have five more currencies to worry about, and most of them will be looking for places to move into.

At the end of the day, we are still a country which continues to require capital and can absorb large amounts of it. So by default, willy-nilly you will find capital coming in. I don’t really see the big brouhaha about why a breakup of euro zone will be bad for country like India. There will be some panic in the near term and therefore there maybe move down, but I would buy that move down.