MC Interview: This fund advisor likes consumer discretionary as easing of interest rates along with Budget tax cut create favourable space for sector

Ankita Pathak of Macro Strategist and Global Equities Fund Advisor at Ionic Asset

According to Ankita Pathak of Ionic Asset, the budget tax cut and now the easing of rates create a favourable space for consumer discretionary as a sector.

"We continue to like both banks (despite near-term NIM compression, there are long-term tailwinds and valuation comfort) and consumer discretionary as sectors," he said in an interview to Moneycontrol.

She is more inclined to lower inflation than otherwise. "Global industrial commodities are unlikely to see price rise and domestic agriculture is benefiting both from the monsoon and high base from last year," said the Macro Strategist and Global Equities Fund Advisor at Ionic Asset.

Do you think the RBI will pause its rate cut cycle after frontloading with a 50 bps repo rate cut and a 100 bps cash reserve ratio cut?

In the near term, the pause is rather likely given the front-loading and the need to change stance within one policy. However, we believe at least one more rate cut remains plausible in the current cycle. Inflation isn’t a concern, so a lot will now depend on growth. India has been far from its potential output of 7-8 percent, money reflation can help course correct.

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Ankita Pathak

Chief Macro and Global Strategist|Ionic Wealth

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What is your interpretation of the RBI Governor’s commentary?

One of the best tools an MPC (Monetary Policy Committee) has is guidance, and we believe the RBI has used all 3 tools - rates, liquidity and guidance very effectively in this policy. The commentary was rather precautionary, it was meant to keep hopes controlled and not signal excessive, unwarranted easing. It re-emphasized a data-dependent stance, keeping inflation and capital market expectations rather controlled. The stance change brought a sense of responsibility with the MPC tools.

Do you believe the liquidity issue has been completely addressed by the RBI?

To a large extent, yes. Transmission of the rate cut only happens when liquidity is in surplus, and with a significant CRR (cash reserve ratio) cut, the RBI has alleviated liquidity woes. So far, of the 50bps cut before this policy, only 15 had been transmitted in the weighted average lending rate. The pace of transmission should pick up hereon.

Do you see any risk to inflation, even though the RBI has revised its inflation forecast downward?

We are more inclined to lower inflation than otherwise. Global industrial commodities are unlikely to see price rise, and domestic agris are benefiting both from the monsoon and the high base from last year. Outside risk of imported inflation from crude, currency pressures, etc, remains but is rather unlikely.

Do you also see any risk to the economic growth forecast of 6.5 percent maintained by the RBI?

The only risk is from the global trade dynamics. If our exports are not able to maintain their position due to tariffs, it’s likely to be a problem. Domestically, all eyes will now be on private capex and private expenditure.

Which sectors are likely to benefit from the RBI’s interest rate cut and its other decisions?

Usually, this is good for any sector where a lower cost of borrowing helps drive demand. The budget tax cut and now the easing of rates create a favourable space for consumer discretionary as a sector. We continue to like both banks (despite near-term NIM compression, there are long-term tailwinds and valuation comfort) and consumer discretionary as sectors.

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