Expect 50 bps rate cut from RBI in Oct: Andrew Holland, Avendus Capital
The government has to do something with the fiscal policy and help kickstart economy.
Seems like a lot depends on where things go with regards to crude. In the near term, is it going to dictate our market mood?
Yes, absolutely correct. We got hit by it in the last few days. It seems to be settling down in terms of the noise coming out from Saudi Arabia you could never be sure whether there is going to be any escalation but as the day unfolds and the output comes up, oil prices will probably fall. In the very short term, you might just have that risk premium on the oil price. Otherwise, demand was falling globally and so we get out of this kind of risk phase, I would expect the price to fall. So, that would be good for India.
Given the current context, what is the strategy? Does one wait on the sidelines for some clarity or have we got yet another cabinet meet that we are still watching out for? Do we expect that perhaps a slowdown is going to be fairly prolonged? What would you suggest?
It is the fear of what we do not know at the moment. I was listening to the RBI Governor. He said he was shocked to learn the GDP number. Now, if he is shocked, then we are all shocked. The figures should have been better known to him than most people. So, that is where we are. We are just not quite sure where it is all falling to or where it is going to stop. It is probably less bad than it is being made out as we have a negative sentiment all around.
I do not think it is helped by piecemeal announcements because you cannot see the full picture but when the RBI governor stands up on October the 4th, 50 bps cut is definitely going to be there because if we did not see this slowdown, then obviously the monetary policy was not working in favour of the economy. I think he is trying to make up for that. That would be good news and obviously we will see what the Fed does tonight.
You could have an environment where what we are looking at today will start to play through towards the backend of the year as interest rates start to feed into people’s pockets as people fear that they can never stop paying for things or buying new things.
Secondly, the government has to do something in fiscal policy. Whether they do it through privatisation and raise money that way or just take the deficit a little bit out in the short term and privatise the company is up to them. It does not really matter which one comes first? You got to kick start the economy as well. If they can do that before October 4, along with interest rate cuts, then we will have a different mood for those corporates and market players as well.
Are metals investment-worthy or would you avoid them because a lot depends on what happens between China and US?
They will start meeting from October 15th and will come to some sort of deal. We are getting close. President Trump has actually blinked and both economies are now suffering because of the trade war. All we can expect is there would be no trade war because even if they try and do a new deal, it has to go through the Congress there. I am not sure that is the play that we are after. A lot of things are happening in October. Our interest rates are coming down. There is going to be a fiscal policy in terms of a fiscal plan to get the economy moving plus lower interest rates globally; a positive outcome to the China-US trade war could be a good fillip for equities in the backend of the year.
What do you think the Fed is going to do?
They certainly will do 25 bps cut, I guess. I suspect they will again try to see that the economy does not slip from where it is now and stabilise it. They will probably try and please Trump in the very short term as well. So, they will reduce rates.