Jayesh Mehta, MD, Bank of America sees December consumer price index (CPI) heading lower in the range of 9.5-10 percent. According to him, if December CPI happens to be above than 10 percent then CPI for the next month is likely to be 9.5 percent.
For the next 15 days, he sees the rupee ranging between 61-61.75/USD. He feels for the rupee to break 61/UISD levels huge equity inflows would be required, says Mehta in an interview to CNBC-TV18
Below is the verbatim transcript of his interview on CNBC-TV18
Q: it has been pretty good opening for the Indian market, do you think there is momentum in the rupee and we could breach the 61/USD mark on the upside?
A: This appreciation in the rupee is mainly due to dollar weakness and the momentum for dollar weakness after the weak job’s data would continue for at least a week or so. So from that perspective rupee could strengthen but major thing for the rupee is equity inflows. It is first time in weeks we saw the market rallying a bit. However, we will have to check the numbers today whether it was FII buying or net selling because Year-to-date we have had net FII selling, which we need to be cautious of.
Q: With regards to bond markets in terms of the GIT reaction that we have seen today, post IIP how would you assess it?
A: Post IIP, nobody has started talking about rate cut but at least people have stopped thinking about rate hike and that is one positive. That is supported by the prices which should support inflation and hopefully today’s CPI should give you 9.5-10% versus 11% since last time. There was a momentum due to CPI coming off and that has got enlarged because of weak US numbers and weak US rates.
However, today’s CPI number would be more crucial and hopefully should show a lower tick.
Q: In case CPI comes in at around 10.2 percent, then what would be the reaction on bond prices?
A: At least we won’t see people coming out and buying in big way and people have already build some positions there.
Even if the CPI number comes at 10.2-10.3 percent the expectation for the next CPI is at the 9.5 percent handle, so that will keep the momentum up. But if we get a shocker today then it would be outside the line of the market but that doesn’t look likely.
Q: What are you making of the Gilt-switch being delayed, how much of a supply pressure easing do you expect in bond markets. Do you think it will just be delayed in terms of supply pressure going into FY15?
A: That is more to do with headline sentiment and depending on the weak market and bullish market. Even if the switch happens, I am sure they would do it more with insurance company and may not impact the market much. So, even if it happens this year or next, should not affect the market except sentiments and it depends on momentum of sentiment at that point of time.
Q: What would your rupee range be for the next 15 days?
A: For the next 15 days, unless we see a huge equity sell off, the range would be 61-61.75/USD but breaking 61/USD is going to be difficult for that we need huge equity inflows coming in.
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