Policy non-event; back to biz as usual for mkt: Religare MF

“I don’t think the stock market really expected anything great, so I think it will be just back to business as usual and perhaps back to the earnings season which is still not over,” he said in an interview to CNBC-TV18.

The central bank today kept key policy rates unchanged, but eased the statutory liquidity ratio to 23% from 24% in a bid to ease liquidity. However, the stance of the RBI remains hawkish, which is not much of a comfort for the market.

According to Subramanium, this policy review is not as important for investors are the statements from the US Federal Reserve and the European Central Bank, so those two events will be key in determining the market’s way forward.

In such a scenario, Subramanium says it is best to be choosy and pick those companies that have a strong balance sheet and healthy returns. However, he warns that the market can fall to new lows if macro economic data worsens. “If we have a full-blown crisis, we can go down lower to 10 times forward earnings, which is significantly below  the December lows,” he said.

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Below is an edited transcript of his interview with Latha Venkatesh.

Q: How do you think the market will look at this? It isn’t that just a rate cut was not delivered, that was not expected, but it has come in perhaps a little more hawkish.

A: For the market, it is really a continuation of the kind of sound bytes that we have seen from the RBI in recent times. They have continued to reiterate that inflation is something they are going to continue stressing on. They are well aware that growth is currently below potential rate of growth, but they are saying that they are constrained in terms of doing anything because of the current level of inflation and also because the government does not appear to be doing anything.

So as far as the market is concerned, this credit policy announcement is not really a big deal. Perhaps in yesterday’s excitement of the market moving there were some people starting to believe that you could see RBI moving, but otherwise I don’t think the stock market really expected anything great. So once we are out of the way with this event, I think it will be just back to business as usual and perhaps back to the earnings season which is still not over.

Q: How would foreign investors look at the market for the next six months? Will we now start seeing people withdrawing money?

A: I don’t want to generalize on this, but the fact is that inspite of all the bad news that we have seen we have actually seen foreign inflows hold up very well right through this year and over the course of the last month as well. So I think it’s a little hard to now detect where these flows are coming from. But, I think there is a fairly large number of investors out there who have perhaps given up on the whole top-down India story. At the same time, what they are saying is that there are some absolutely outstanding companies in India which they are interested in at current valuations, for which they will overlook the macros. I think that’s the kind of flow that India has really been attracting.

On the margin I think there is also another kind of inflow that we do attract and that’s the category where India has seen a very nice play on the sort of risk on risk off mode. Also, I think that category of investors may actually be paying more attention to what the ECB and what the US Federal Reserve has to say over the next two days than to what governor Subbarao had to say today.