RBI may not cut rates; retail participation dull: JRG Sec

Anand Tandon, CEO, JRG Securities, says that he is of the view that the RBI may not cut interest rates in upcoming policy, as inflation still continues to remain high. He also mentions that retail participation in equities is also very limited and it is very difficult to get people to invest in this class. Investors rather prefer to investment in gold and real estate.

Also read: Defensive on emerging market currencies: Societe Generale Below is the edited transcript of his interview to CNBC-TV18. Q: Do you think the RBI will cut rates aggressively post CPI data?
A: I still don't think that there is any reason for the RBI to cut rates because inflation continues to remain high. More importantly, the government itself recognises that the inflation is up because of policy inaction on various fronts. Investment indicates that nothing is coming through and none of them have got anything to do with interest rates.
On the other hand, savings rates continue to slow down. If State Bank of India  wants to increase deposit rates, then they have to pay saver more to incentivise him to save.
So the logic for cut in rates is not very strong. The only question is whether you can pile on enough pressure on the RBI to go through and cut more because of the pressure that they are under rather than because of any policy requirement. Q: There is a serious lack of local investor enthusiasm that we are seeing in this ongoing market momentum. Do you think the monetary policy has any role to play in this backdrop in terms of either spurring market momentum or infusing some life into the retail side of the market?
A: The market is very clear from retail perspective. It is a no-no. Most people are not excited about high volatility and unpredictability and that can be seen in the exchange volumes between January and February which were close to 22 percent on the equity markets.
This indicates that there is no retail participation. It is very difficult to find people who are willing to invest and no matter whatever is the long-term story about India, they always feel it is better to invest in other asset classes. Gold and real estate still continues to remain more attractive investment destination. I do not see that changing anytime in the near-term. Q: What is your view on the sudden collapses that we saw in the broader market stock like Usha Martin, Hotel Leela, SREI Infrastructure and TVS Motors? These stocks are down between 6-17 percent in last 30 minutes of the trade?
A: The only thing which can cause this movement is some small midcap fund deciding to move out and selling in a hurry. These stocks are not highly traded in volumes, if you want to get out of them in a quick way and therefore the prices will drop quite significantly if any large investor were to sell.
These are not companies which are very poor in terms of their either corporate governance or economic outlook. So, one can assume that some institutional investor was holding onto them and has decided to bailout. Q: Are there any rate sensitive names that you would be bullish on now in terms of either sectors or stock specific action in the run up to the policy and post that as well?
A: It is not advisable to game things like policy on factors on which you have no control and in this case even the policy makers don’t have control over it. So, it is not sensible to try and game that.
The better way to look at it would be to see via trends in interest rates moving up or down in 6-12 months and the companies likely to benefit. I think it is better to be cautious than be brave. I think consumer facing companies are better than infrastructure or balance sheet based companies where theoretically you would get highest delta if and when interest rates come down. Q: What is the likelihood of a CRR cut coming through? Where do you think the RBI has room to cut the CRR if in case they want to, considering that they have already been so aggressive in 2012 on the CRR?
A: In theory, there is no reason why there should be a cash reserve ratio (CRR) cut because you are essentially assuming that there would be no run in the banks which will not be supported by the RBI. So there is no use for having cash lying with the banks. So, one can take it down to zero. Will RBI cut rate? I think almost inevitably because clearly the liquidity is an issue and in March especially that always has been something which has been a cyclical problem. So, I think liquidity enhancement will probably entail some movement on the CRR front, perhaps with a higher probability than on interest rates etc. Q: A lot has been spoken about the banking space in the past two days at least in terms of negative news flow. What did you make of all the news flow on the banking space? Would you give it as an opportunity to buy into private banks such as Axis as well as ICICI Bank?
A: I don't like to comment on the buy levels but growth will continue to come. I doubt that banks are systematically trying to do money laundering. There may be cases where some local branch may be trying to improve their own performance vis-à-vis the rest of their branches and therefore suggesting to clients that they may want to take smaller accounts, it is entirely possible.
I do not see how any management in any company with a distributor network will ever be able to control the behaviour of individual branch managers sitting from a distance which is simply not possible. However, few events may have happened. Growth will continue to come in these stocks. These are expensive stocks. If there is no serious fall then it would be a good time to look at them. Q: In your mind how much of a correlation or how much of a bigger trigger is the RBI policy vis-à-vis the global movement that we are seeing in equities? Which one would you think the Indian markets would react to more?
A: In the near-term interest rate movement will impact, but if you step out even three days after that we continue to be driven very much by short-term up and down flows. Given that, the larger markets have begun to do very well and are near at almost their highs. I would not be very surprised for someone looking at India or any other emerging market from the outside, he would wonder why allocate money to emerging markets with all the volatility and policy indecision where you have a market which is roaring on its own and beginning to show some signs of life in terms of the real economy as well.