Current RBI policy is a correction of the last excessive cut: Nipun Mehta
When one looks at the stand that RBI had taken during the announcement of 50 bps cut, it probably showed RBI taking a different stand. So, this is a correction of that stand.
ET Now: Clear disappointment from the Reserve Bank of India leaving the key rates unchanged?
Nipun Mehta: To an extent I would think so. To some degree, this is a correction of the excessive cut. In the previous policy announcement, they had cut rates to the extent of 50 bps.
When one looks at the stand that RBI had taken during the announcement of 50 bps cut, it probably showed RBI taking a different stand. So, this is a correction of that stand, whereby it has gone back to looking at controlling inflation as opposed to ensuring growth coming back on track.
Till you have inflation coming back under control, you could see RBI delaying the rate cut as was expected. What was surprising definitely was that no CRR cut came about.
ET Now: In light of this hawkish stance of the RBI, would you advise investors to stay away from banking stocks?
Nipun Mehta: I don’t think so. Not having a rate cut does not necessarily mean that you are likely to see bank assets been under pressure. Very clearly, it is more due to lack of growth that could result in NPAs.
Rate cut is not something that is likely to put the asset quality under pressure. Over the next few days, probably you will see a levelling out of or discounting of this rate cut not happening in the banking sector. Then you will have it back on track.
I would think that if further correction happens for the banking sector, it could be still a good opportunity to get back into it.
ET Now: How hopeful are you of the cement pack continuing to outperform? As has been the case all of last week, today though you are seeing some signs of profit-taking?
Nipun Mehta: This is clearly coming out of the fact that there is a good pricing power that the sector has seen, and also no serious negative announcement as far as the CCI is concerned.
Valuations look a bit stretched as far as the entire pack is concerned. There could be some steam left in may be two or three very small companies which probably still do look attractive. At least among the large cap companies from the cement pack, the valuations do look somewhat stretched.
I would not look at them very positively if you are looking at them from a very long-term scenario.
ET Now: Now that RBI has not cut rates and we are not so sure if there will be any moves from New Delhi as well, do you think in the near term, markets are likely to be under pressure? There is no real positive trigger. Even monsoon looks a little uncertain.
Nipun Mehta: What the markets might want to look at is whether the reforms come back on track after the presidential elections are over. Some of the bills that are pending could be passed either by the Cabinet or the President himself. Clearly, if Greece is behind us post today, the markets would want to look at how developments pan out as far as Spain, Portugal and Italy are concerned.
Any positive that comes out of here will ensure some fund flow towards the emerging markets. So these are the 2-3 positives which the markets might look at. Till there is any announcement, there could be a range bound lackluster movement in the markets.
ET Now: So what is it that you are recommending to your clients right now? Would you have any long-term buys?
Nipun Mehta: On each dip, the banking sector looks interesting. Again, you are seeing a range-bound movement now. So one can take benefit out of that range-bound movement. On any dip, both banking and capital goods can be bought. Infrastructure is also looking good on a long-term basis. Any cash that is sitting on sidelines could be deployed on serious dips in these markets.