Mkt will keep eye on RBI commentary on inflation: Religare

He is positive on IT and pharma, bearish on financials because of asset quality concerns and has a neutral stance on telecom. He is bullish on companies like OBC, Cummins, Crompton Greaves & Voltas among midcaps; among pharma stocks, he likes Sun Pharma, Lupin and DRL.

Below is the verbatim transcript of Tirthankar Patnaik's interview on CNBC-TV18

Q: Do you think today could be a nonevent because the market is factoring in a 25 bps rate hike and in all likelihood that is what could play out?

A: Yes, odds are very high that we will end up with a 25 bps hike. Important thing would be if the central bank is essentially peaking out on rates at this point. Our call is that for the fiscal we would be probably looking at 8 percent on the repo and 9 percent on the Marginal Standing Facility (MSF). And more importantly the commentary from the central bank would be what we will be looking for.

For instance what is the thought on food inflation transferring into generalized inflation if it will especially given the weak economic conditions we have, how much of a transfer. Once the Federal Reserve (Fed) does start tapering how much of a liquidity and therefore disinflationary incentive would that have and what the central bank is planning to do about it. So the commentary would be very essential at this point.

Q: One would expect going by what Rajan has said in the past that he does not care whether inflation is supply or demand side, inflation is inflation; is the argument that he has maintained. If this is the level of hawkishness he maintains that ultimately we will not care about the demand or the supply side origins of inflation, do you think the market will react negatively at all? At the moment the system is flushed with cash, so yields therefore need not move irrespective of what he says?

A: There is a part of the market that does think we are pretty much at the peak and given the hawkish tone you get the message and inflation would come off going forward as well. My read is that they will go to about 8 percent on the repo, 9 percent on the Marginal Standing Facility (MSF) at this point and maintain their hawkish stance really.

Q: How will the markets react if he does that 25 bps and he keeps that hawkish tone which we all expect and which he has done in the past saying that I am going after inflation and leaves it at that. How will the stock markets behave?

A: I think they would still take it negatively. Look at the markets direction post the state elections. There had been fair amount of positive sentiment built in into the markets pointing out that once food inflation comes off we will be turning over the inflation curve. We would have a decisive majority in the government next year. So clearly there had been a lot of positive sentiments built in which is coming off over the last week and half or so. We would believe that this sentiment will continue, market will take it in a subdued note.

Q: Is there a high likelihood that the market ignores the macro weakness if the Fed does not move on taper and then resumes its bullish strength something that you were just suggesting as well?

A: I guess yes because very large portion of the market is also expecting that the Fed would start its tapering program today. Our own thought is that the announcement would happen but the actual tapering would probably start around March and that too in a very limited way, contained way of USD 5-10 billion a month at best. So if the Fed does not do any of those steps today there should be a positive sentiment regardless of what the Reserve Bank of India (RBI) does today. But importantly for us from a market perspective the way we are looking at it and the way we are positioning ourselves is that we have to be worried about inflation, we would not be so much worried about what the Fed does, what we should be worried about is what happens on inflation and how is the RBI going to tackle it especially in an election year.