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Expecting a 25 bps cut with a neutral commentary in RBI policy today: Vivek Mavani

I do not think the MPC will be adventurous enough to go for a 50 bps cut, says Mavani

ET Now|
Apr 04, 2019, 11.07 AM IST
Vivek Mavani-1200
I do not think the MPC will be adventurous enough to go for a 50 bps cut, says MavaniI am more positive on Bajaj Auto and Hero MotoCorp in the two-wheeler space and I would be a buyer in Maruti on declines, said Vivek Mavani, Independent Investment Advisor, in an interview with ETNOW.

Edited excerpts:

Morgan Stanley has downgraded Eicher Motors yet again. They have cut their target price by a good 25%. Which camp are you in?

I would avoid Eicher Motors at this point of time. There is a serious issue with growth especially on the Royal Enfield side. They had stellar growth rates for three-four years between 2013 and 2017 and in last one year, the issues with growth probably are not something that will get corrected as soon or as easily.

Of course, the market was slightly excited in the last couple of days with Vinod Dasari, ex-Ashok Leyland CEO and MD joining Eicher. I would avoid Eicher at this point of time and it is going to get seriously derated in the sense that valuation multiples will contract over the next one or two years with growth being elusive. In fact, I am more positive on Bajaj Auto and Hero MotoCorp in the two-wheeler space and I would be a buyer in Maruti on declines.

The news flow is negative. There is volume growth issue. Apparently, in Bajaj Auto, the volume growth issue seems to have sorted out. They have been reporting double digit growth but in case of Maruti and Hero, in spite of the negative news, the stocks are not falling. Although we may have a couple of more quarters of slowdown or growth pangs or growth issues, the collateral damage on the stock is done with. They may not fall much from here and it is certainly time to accumulate on declines for a two-year view.

RBI monetary policy is coming up today. The general consensus is we are going to see the 25 bps cut. What are your expectations, what is the impact?

In terms of the impact we have already seen a 25 bps cut. It has been expected for more than a month now and although we are focussed on equity market, the bond markets have seen a very sharp rally across the board in bonds -- whether it is G-Secs or corporate bonds or PSU bank bonds -- and the yields have fallen by anywhere from 20 bps to 40 bps.

That also is positive from the market point of view in terms of higher availability of liquidity in the system. So that partly will help some NBFCs which have been facing tight liquidity conditions over the last six months or so. While interest rates are likely to be heading down, for NBFCs the cost of borrowing has been increasing practically every month or every quarter and the indication is every month we seem to be having one large bond issue, NCD issue, from some NBFC or the other. The latest is from Shriram City Union Finance offering 10-year bonds at 9.75 or even L&T Finance offering for the first time higher than 9% or 9.25 whereabouts for 10-year paper. And these are the primary issues, reasonably large issues of few hundred to a couple of thousand crore. If the liquidity eases there, you will see some action on NBFCs as well.

The state of uncertainty over Zee cracking a deal continues. Will you buy this one?

They have been on record that for the last few months, they have been in talks with Sony Group. Even Sony has confirmed that the deal can go through. It must have been to do with valuations and in terms of post a certain shareholding transfer in terms of control of the business. There could have been some disagreements there and hence the deal did not go through.

These things happen in course of business. Now it certainly is a negative because the market was hoping the deal will go through. It would have been a massive entry of Sony into the Indian media space besides the presence that they already have, Zee would have been a priced catch. More importantly, even for the Zee promoters, it would have led to a lot of their problems easing. Now neither is happening. We are concerned with Zee and I would avoid it till there is more clarity there.

Which way would you be sticking your neck out? Do you think it is going to be a 25 bps cut with the dovish commentary or a straightaway 50 bps cut which would really please the markets?

I do not think the monetary policy committee (MPC) will be adventurous enough to go for a 50 bps cut, but a 25 basis points cut maybe a given with a slight neutral to a hawkish commentary because with crude rising and inflation hawks in the MPC and within RBI probably will also have a say.

I do not think that they will as dovish as one would have expected. We financial market participants always want central bankers to be dovish and generous and benign, but they are more likely they have a mind of their own. So, a cut with a neutral commentary rather than a dovish commentary is already there in the price both in the bond markets as well as equity markets.

I do not think there is much to expect. The serious negative surprise would be that if they decide to do nothing. If they decide not to cut and just give a neutral or even if they give a dovish commentary, the market is going to be terribly disappointed.

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