 "Demonetisation impact unlikely to last long: Gaurang Shah")
Post the Reserve Bank of India (RBI)’s move on cash reserve ratio (CRR), the central bank is unlikely to cut interest rates in its next policy meeting in December, says Gaurang Shah, head investment strategist at Geojit BNP Paribas Financial Services in an interview with Aprajita Sharma. The markets are already factoring in a rate hike by the US Federal Reserve, he says. Edited excerpts:
What is your near-term outlook for the market? How will the benchmark indices perform in the remainder of 2016?
Market could consolidate in the range of 8,020-8,050 on lower side, and 8,120-8,250 on higher side (Nifty spot). For the remainder of 2016, the downside looks protected at 7,950-8,000 (Nifty spot).
What is your outlook on the banking stocks in the backdrop of RBI's move on the cash reserve ratio (CRR)?
The RBI’s move on the cash reserve ratio (CRR) was in line with expectations and was most prudent, as excess liquidity had to be sucked out of the market. If it feels that necessary adjustments need to be done, then the upward revision in CRR could be back to normal level. Banks will have to pay to customers on deposits from September till November (on which the CRR has been hiked). However, they will not receive any interest. We remain positive on the banking sector with focus on private sector banks and certain public sector banks.
Will the Reserve Bank of India (RBI) reduce interest rates in its next policy meeting in December?
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The RBI is unlikely to reduce interest rates on December 7. Rate cut may be implemented in the first quarter of calendar year 2017.
How should investors position themselves for the next one year, given that the quantum of the damage on economy due to the currency demonetisation is hard to gauge?
Investors who have invested in equity markets with a long-term horizon have no reason to worry. People need not be afraid for their investments if they stay invested in equity markets for six months to one year in stocks which have generated good returns. The perceived damage on account of demonetisation is not likely to last beyond three – six months and we remain optimistic and positive on the overall economic fundamentals. The negative impact on account of demonetization will last for a maximum of three to six months or one or two quarters. If the RBI resolves ground level liquidity problems faster, the impact could be mitigated faster.
What about the FII flows?
The sell side number was higher before the demonetisation move came into effect. The number has been higher after this but it was impacted more by the US Presidential elections rather than demonetisation. Year-end dividend pay-outs are also the reason for the sale. As compared to the South Asian and Asia-Pacific equity markets, the Indian equity market is more attractive and has the potential to offer long-term benefits to investors. We foresee increased fund inflows in the Indian market with reduction in fiscal deficit, fall in inflation and improved GDP figures.
Other than demonetisation and US Fed rate hike, what future triggers do you foresee that may come into play?
The impact on account of the US Fed hike has been factored in by Indian markets and we do not see a major impact on account of this. Even if the US Federal Reserve hikes rates by 25 basis points, no large-scale outflow of funds is expected from India. The Union and Rail budget has been scheduled for February 1, 2017 and we expect a pre-budget rally.