RBI may up rates by another 25-30bps, sell autos: Baer Cap

In a bid to tame rising inflation, the Reserve Bank of India (RBI) raised key policy rates (repo and reverse repo) by 50 basis points each on Tuesday. But this didn't come as a surprise to Alok Sama of Baer Capital, who said, "Inflation is now heading towards double digits, which is way above the central bank's comfort zone of 3-4%."

Since March 2010, the RBI has tightened policy rates 11 times (including the latest hike). "Cumulatively, the repo and the reverse repo rates have been upped by 325 and 375 basis points respectively with no significant impact on inflation, suggesting that other monetary policy tools tinkering with cash reserve ration (CRR) and statutory liquidity ratio (SLR) are called for," Sama stated in an interview to CNBC-TV18. Going forward, he sees the apex bank hiking rates by another 25-30 bps to maintain its anti-inflationary stance. Further, Sama is relatively constructive about the market. "More than local, global macro headwinds are likely to affect fresh cash flows, thus, triggering weariness in sentiments. However, the fall in key benchmarks have made valuations attractive," he said. In rate sensitive stocks, while he is optimistic about banks, Sama believes that one should avoid autos as it is likely to reflect the negative impact of interest rate hikes. Below is the verbatim transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.  Q: The game changer for the market sentiment has been the 50 basis point rate hike. Did that surprise you? A: Not actually. The last time I came on the show, which was in May, we talked about expectations for the rest of the year. At that point, I am pretty sure we stated that the rate hikes for the balance of the year would probably be ahead of what the market expectations were. So, that