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'There may not be rate cuts in the second half of this year'

Abhishek Vasudev/ 20 Jun 12 | 08:25 AM

Given inflation concerns, the Reserve Bank of India maintained a status-quo in its mid-quarter policy review on Monday. Jagannadham Thunuguntla, Strategist & Head of Research with SMC Global Securities tells Abhishek Vasudev that given the macro-economic condition, the FIIs too are not very keen on investing in India. Edited excerpts:

Markets witnessed a sharp sell-off after the Reserve Bank of India (RBI) decided to hold rates steady. What is your outlook for the markets from a short-to-medium term perspective? What are the triggers that can boost the investor sentiment?

With the reduced GDP growth, everyone anticipated there will be interest rate cut by 25 – 50 basis points (bps). With the RBI not cutting the key rates move and reading the central bank's language on Monday, it clearly reflects that there may not be any more interest rate cuts in the second half of this year. This means that only hope of positive trigger in the form of interest rate cut is over for the markets.

How are the foreign institutional investors viewing the Indian equity markets vis-a-vis the other emerging markets (EM) given the current macro-economic situation?

Given the current macro situation, the credit rating agencies are continuously maintaining Indian outlook as negative. FIIs are not very keen on India presently. The GDP growth of 5.3% is also not inspiring any confidence in FIIs to look at India. Many things have to be done rightly from this point if India has to come back in terms of growth and to build back FII confidence.

FMCG stocks are quoting near the all time high levels. Do you see the up move continuing or is it time to book profits?

Everyone is aware that FMCG stocks are trading at extremely high valuations. However, considering the current market conditions and lack of investment opportunities, the investors are continuously chasing FMCG stocks. If the current bearish market conditions remain, these stocks can rally further from the current levels.

Gold prices registered fresh all time high levels, while crude is trading on a soft note. What is your outlook on these commodities?

Gold (in dollar terms) has started correction from its 12-year bull run. However, in rupee terms, the yellow metal can remain at elevated levels as the Rupee is continuously weakening.

With the slowing GDP, the demand for crude is cooling off and I expect the prices to remain soft. However, in rupee terms, there is not much advantage as the benefits of soft crude prices are getting nullified given the rupee-dollar equation.

Greeks voted in favour of pro bailout political party in the elections. Given this development how do you see the things panning out in the euro-zone?

This is surely a short-term relief. However, by no means, it’s a long term solution to resolve the problems in the euro-zone.

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