Mar 14, 2013, 01.26 PM | Source: CNBC-TV18
PN Vijay, Portfolio Manager said Reserve Bank of India's (RBI’s) monetary policy and upcoming earnings season could set the market trend in the next three-four months.
PN Vijay (more)
Portfolio Manager, askpnvijay.com | Capital Expertise: Equity - Fundamental ,IPO
Commenting on the policy he said, "There would be a rate cut of 25 bps and some collateral action is possible on the cash reserve ratio (CRR) front."
Earnings of India Inc have bottomed out for sure and corporate India has learnt to live with costs."I am not looking for negative surprises especially in cyclicals or financials, I would be looking for some positive surprises in sectors like IT," he added
Below is his verbatim transcript of his interview on CNBC-TV18
Q: There is a lot coming too from the government’s stable again starting off with National Aluminium Company Ltd ( Nalco ), any thoughts on that issue and what kind of reception it may receive?
A: Nalco would find the going a bit tough given the environment for metal and there does not seem to be any great revival in demand for metal. Of course the Chinese economy is showing the first greenshoots of a recovery. However, on the whole, both ferrous and base metals are having a tough ride. Given that context unless the pricing is extremely aggressive and it being a very export oriented alumina unit, I don’t find Nalco finding it very easy.
However, it is a company with a good track record in the stock market and it is a smaller issue compared to National Thermal Power Corporations (NTPC’s) of the world. So, it would probably get subscribed but I do not think it is a blue-chip kind of an issue at all.
Q: The next two local triggers are the monetary policy next week and then we get into earning season starting April, what do you think these triggers can do for the stock market?
A: These triggers can set the trend for the next three-four months surely. In the short-term looking at the credit policy, my own sense is that there would be a rate cut of 25 bps and some collateral action is possible on the cash reserve ratio (CRR) front.
The Reserve Bank of India (RBI) generally goes by wholesale price index (WPI) and that too the core inflation number. If you see a correlation between the rate action and the inflation indices, it has been largely driven by that core inflation number, which is showing distinct sign of softening. So, the RBI maybe tempted. Additionally, if there is a realization in all quarters that the government stretched the limit of political sagacity in the last Budget, going beyond this would have been inviting for political trouble and with large states coming up for elections this summer, the government would not do that.
So, if RBI needed any proof of seriousness of government action, and some hope that inflation would be in 7 and sub 7 percent on the WPI side going forward, whether because of base effects or due to real prices softening, RBI would lend a helping hand. This is my objective analysis.
My hope of course is that the RBI would also think that the early shoots of recovery in the index of industrial production (IIP) and in the trade data that we got would be enough to give some sort of a real sign that if the economy is given a bit of a push on the interest rates, we may go back at least to 6-6.5 percent growth cycle in FY14.
On the earnings front, I think it is a much easier call. Company earnings have bottomed out for sure. I think corporate India has learnt to live with costs. Gradually, the two forces which are weakening demand and weakening material prices have evened out. It is possible that what we are seeing especially in the manufacturing IIP, we may get fairly decent earnings in the quarter ending i.e. March 31. I am not looking for negative surprises especially in cyclicals or financials, I would be looking for some positive surprises in sectors like IT.