There is a case for rate cut, market will react to fine-print: DSP MF’s Souvik Saha

From a market point of view, we must consider that India is a consumption story, but the consumption part has been struggling big time.

While the Reserve Bank of India could maintain status quo at the MPC meet announcement on April 5, investors will keenly watch the fine-print to take cues about the future, said Souvik Saha, Investment Strategist at DSP AMC. Edited excerpts from an exclusive conversation with Moneycontrol.

Today, the world looks at India as a growth story. But, whatever capital expenditure in India is taking place is all government-driven. There has been no sign of a private capex yet. For the India growth story to continue, private capex needs to pick up.

Inflation has remained low for a long period of time. However, after the Red Sea crisis, commodity prices have started picking up again as supply chain has been disrupted. That is going to boil up commodity prices and cause inflation.

I am sure policymakers are very much cautious. This is really important because you don't want a situation where inflation keeps going up and up because of global tensions.

Track all the updates from MPC outcome today here

The US Fed has already highlighted the end of the tightening cycle, but not the quantum of cuts. RBI could also take the same line.

Investors read the fine-print to guage RBI’s thinking.

From a market point of view, we know India is basically a consumption story, but the consumption part has been struggling big time. One way to bring back consumption is to have slightly lower interest rates because discretionary spending has remained very low. In recent times, the RBI has been very cautious about small finance bank lending. If there is a rate cut, it would support spending but there will be concerns around small credit.

On the other hand, demand is not great, which has been the reality recently both in India and globally. If we start witnessing earnings cuts, it will directly push the market into negative sentiment.

Also read: Will MPC change repo rate, stance? What Bandhan Bank’s Sanyal thinks

Less negative will be a very good positive for the market. Which is why a lot of people will look at the fine print. That will give a very clear indication of what the RBI is actually thinking and its probable steps. Anything indication of RBI taking a neutral stance and maintaining status quo on rates will impact market positively.

The market is not factoring any caution.