BP Singh, Executive Director and CIO - Equity, Pramerica Mutual Fund, said the steps taken by RBI to curb rupee fall, is a step in right direction. These are small initial steps and we hope that going forward similar structural changes will be brought about to ensure that the people find it attractive to continue to invest in this economy.
BP Singh, Executive Director and CIO - Equity, Pramerica Mutual Fund, said the steps taken by RBI to curb rupee fall, is a step in right direction. These are small initial steps and we hope that going forward similar structural changes will be brought about to ensure that the people find it attractive to continue to invest in this economy, he told CNBC-TV18.
In a major attack to clamp the further decline in the Indian rupee against the US dollar, the Reserve Bank of India (RBI) on Monday late evening issued a series of liquidity measures.
"It is very important that we continue to keep our rates at parity or in line with what the global investors are looking for," Singh said.
Meanwhile, he does not see banks coming under any kind of pressure because of the steps taken by RBI since the credit growth rates and the deposit growth rates in the past few months have come at par. On the contrary, banks will be in a better positon to start lending to better corporates.
All in all, Singh is positive on markets and advises taking advantage of any fall in the market.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: What have you made of these changes and what it means for sentiment, growth and the stock market? Of course the rupee market will strengthen, but what about stocks?
A: As we have been speaking in the past also we are not being big supportive of cutting in the interest rates for growth in India. We believe that our obsession for growth is too much because India needs is to go through a consolidation phase.
This is a step in the right direction, because unless we take these steps, the currency will continue to depreciate. These are small initial small steps. We hope that going forward similar structural changes will be brought about to ensure that the people find it attractive to continue to invest in this economy.
We need to take into account that the bond yields have gone up almost 100 bps in United States. When we compare with that kind of scenario, we need to fund our current account through various kinds of borrowings. It is very important that we continue to keep our rates at parity or in line with what the global investors are looking for.
Therefore, in our opinion it is a good step. Although it is true that the markets will react negatively in the short-term but that is the right step as far as the market is concerned and market will recognise that.
We will take advantage of whatever little bit of correction which comes about with this, because we continue to remain reasonably positive on the market, vis-à-vis the various other factors which we have been discussing in the past.
Q: Would it imply a big reset in how you approach rate sensitive sectors though, primarily the banking lot?
A: These small steps may not actually result in any kind of reorientation or changes. Overall, if you look at what is happening in the economy and the manner in which the currency is depreciating, we have been always of the view that the export oriented or the companies which have larger businesses in the overseas market needs to be preferred and our portfolio usually favoured them.
As far as the rate sensitives are concerned those who borrow are obviously now going to have a little bit of difficultly, unless they are good quality companies. So, what is happening in the globe is that there is a little bit of change taking place; from money being available to everybody now money is going to be available only to good corporates who are strong. That is the kind of orientation or change which is coming about, so therefore if you choose right kind of companies there is not going to be a problem, because those companies are getting better opportunities. The weaker companies are gradually going to come under pressure with these kind of steps.
As far as the rate sentitives are concerned, those who borrow are obviously going to have little bit of difficulty. Where banks are concerned, if you would have noticed the credit growth rates and the deposit growth rates in the last four months have now come at par which used to be in favour of higher credit growth rate in the past. That means that this is not going to result in a situation where banks are going to come under any kind of tremendous pressure because of the step which is taken. On the contrary, in banks will be in a better position to actually start lending to better corporates.
Q: You are sure that this will do the trick for the rupee or do you think it may just have a temporary pullback impact?
A: I think it is going to be only temporary. You cannot have such a small step resulting for the currency. We need to undertake this particular fact into account that in India the project inflation is much higher than the consumer inflation. So, manufacturers are finding it less attractive to setup projects and that is the reason why last 3-5 years the capex or the capital formation in this economy is low.
We need to ensure that either we bring down the cost that is various components of cost such as land, labour, material etc. been brought down to ensure that the project inflation comes down and which makes it attractive for the investors to invest in India. Or alternatively, the currency will depreciate to ensure that the competitiveness comes back.
We definitely need more structural steps to be taken in order to ensure that the parity comes back and India regains its competitiveness in the global market.
Q: While you may not have been in favour of interest rates moving lower and helping the market along do you think there will have to be a big reset in terms of expectations of the market because of an interest rate hiking scenario? Does the market even have that factored in right now in where it is trading at?
A: I do not think one should start reading into interest rate hike from this event. The event which took place is mainly to ensure that the local money, going and borrowing the overseas assets should be discouraged.
Interest rate hike is not immediately on the card, though inflation is coming back and I think 3-4-5 months down the line we will have a higher inflation.
One needs to clearly focus on what is happening globally. The liquidity which is available in the equity market is going to continue to flow to India and it is that liquidity which is driving the Indian market. If we compare India; the macros do not look attractive at this point in time, however when you compare the same macro with other emerging economies then you find that there is a gap and it looks reasonably attractive.
Therefore the equity market will be more driven by what is going to happen from the overseas liquidity at this point in time, because anyhow the local money is not at all participating in this market.
We are not building a case where we expect the interest rates to start rising immediately, at least in the near-term. However, at the same time we do see a larger period of slowdown and we do see a much lower GDP growth rate than what people are factoring at this point in time. So, there is a slowdown but at the same time the liquidity flow will continue to sustain the market.