CIMB sees tough two quarters for banks, infra, realty

Monetary measures in vacuum cannot solve any problems of this economy, says Devesh Kumar, India Head of CIMB. He feels that India has been following a tight monetary policy over the last couple of years, but it is still not very clear whether that is the reason that inflation has come down or whether falling growth also had a role to play.

Also Read: RBI measures on liquidity necessary for growth: Ahluwalia He fears that currency devaluation led inflation may result in RBI following a tight monetary policy, which will continue in near-term. For the next two quarters, banks, infra companies, real estate and others will be under pressure. Below is the edited transcript of his interview: Q: You track flows quite carefully. What have you made of these announcements by the Reserve Bank and do you think some of the equity market participants will now look to checkout or pullout some more money from the market? A: I am a strong believer that monetary measures in vacuum cannot remedy any problems of this economy. In the past we have seen India following tight monetary policy for a number of years and that has brought inflation down. However it is not clear whether that has brought it down or falling growth has brought inflation down. Similarly, this intervention probably in currency market may have been required at this point in time, but my fear is that the currency devaluation led inflation is also going to result in Reserve Bank of India (RBI) following a tight monetary policy. What we feel is that for sometime in near-term we will see tight monetary policy, which will not change any structural issues because a lot of action is required from policy side and various sides. Thankfully in the last 12 months we have seen a number of right measures being taken, which will take longer time to act. So, therefore, reacting to yesterday’s development, we will see more of this in near-term because of inflation rising its head again and the long-term policy initiatives will play out over a longer period of time. In the next two quarters equity market will see such shocks. But if you look at index, it trades in a band because a number of stocks, which have traded actively, have reduced significantly and at this point of time there are not many investors who are in the market. It is those who have a compulsion of investing in India because they have domestic money they are playing it out here. Looking at the market once again, consumer, technology, pharma and wherever interest rate impact is low, they all will come into trouble. For two quarters, banks, highly leveraged infra companies and couple of others including real estate, will be under pressure. It is likely for the next two quarters to be a tough time for the economy. Although it is not our official view, but my view is that elections may probably happen in November.