No change in key rates but CRR may be cut, says PN Vijay

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No change in key rates but CRR may be cut, says PN Vijay

Portfolio manager PN Vijay doesn't expect the Reserve Bank to cut rates in the credit policy meet, but feels that a CRR cut is likely.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

Portfolio manager PN Vijay doesn't expect the Reserve Bank to cut rates in the credit policy meet, but feels that a CRR cut is likely. 

In an interview to CNBC-TV18, Vijay said,"We are the only emerging market that has not taken some action. All other major emerging markets have been doing this last six-seven months atleast to give a sentimental boost to the market if not a liquidity boost. 

He also shared views on stocks across various sectors.

Below is the edited transcript of Vijay's interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video.

Q: A small plank of this optimism has been the way bond yields had cooled down expecting a rate cut but yesterday the RBIs communication with the bankers seems to indicate that they might go slow on it. How do you think the markets may receive that?

A: Markets could be a bit puzzled by this. I don't think this is an official communication from the RBI; it is more of a grapevine. The fact is that banks are very comfortable. Right now, liquidity with banks is huge because loan expansion has been very little given the environment we have today, high interest rates.

To that extent RBI might be feeling that even without its policy announcement it could get what it wants. It has also being doing OMOs, the second OMO has being done for about Rs 14,000 crore. That is again pushing more liquidity into the system, it can be called as our version of QE1 or QE2 or QE3.

I feel that RBI surely will not cut rates, but they would do a CRR cut because we are the only emerging market that has not taken some action. All other major emerging markets have been doing this last six-seven months atleast to give a sentimental boost to the market if not a liquidity boost.

Q: It also came at a time when the equity market chose to make a big move for itself. Are you getting the feeling that going into earning season the market may stage a bit of a surprise rally?

A: It is doing that, we have got two monster rallies in 2012. After the first one too the market then fall, it just hung around at slightly higher level and yesterday we had again a humungous one. It is more about risk appetite and liquidity today. I wouldn't say that there is anything in the earnings environment that is giving us more reason for optimism. There is some liquidity coming into the market as can be seen from the FII flows and the rupee dollar parity.

More importantly, the risk appetite - if you see the trend in the market very carefully, watch the betas of stocks that are moving around, we are getting some very high beta buying, very high beta stocks like Tata Motors. They are going up and so people are trading risk at this point in time. Whether it is sentiment is difficult to say, but right now people are not looking at valuations. Nobody is expecting anything great from Q3 earnings, but today the risk appetite of investors seems to be gone up considerably for some reason.

Q: There has also been a lot of interest in sectors like sugar and fertilizer, there has been a lot of talk around decontrol. Do you see any of that happening ahead of the elections or do you think it has  just been a bit of a trading run for some of these sectors?

A: I am not too positive about these things especially sugar. Sugar is embroiled in politics. It very difficult for the government to do anything at all considering that the biggest sugar producing state Uttar Pradesh is going to the polls in the next two months. So, I do not anticipate any whiff of policy change in sugar.

Fertiliser has been on the cards. Right from the time when the government decontrolled value added neutral based fertilizers, two years ago they have been looking for that big leap forward in urea decontrol. It could be happening because it is something that makes great economic sense. India's fertilizer production is just stagnated and we are importing huge quantities of fertilizer. So, urea decontrol could give a huge leg up to this sector and invite investments but sugar I am not confident.