The Reserve Bank of India (RBI) is expected to hike repo rate by 25 basis points (bps) in the next credit policy, a top Market Strategist of JP Morgan said here.
"Currently the RBI is being very considerate in its response to monetary policy, in its response to the high level of cost-push inflation. We do expect the repo rate to go up by 25 bps at the next meeting but that is a very modest increase, relative to India's nominal gross domestic product (GDP) growth," JP Morgan's Chief Asian and Emerging Market Strategist Adrian Mowat told reporters here.
Mowat said that the Indian economy should see robust growth and given this, its premium valuations are justified.
"India offers a good growth story. We need to put India's valuations into a global context. I find Indian valuations perfectly appropriate relative to the growth opportunities within the markets," Mowat said.
We are also seeing strong foreign institutional inflows (FII) inflows because they find Indian markets offering good growth and the valuations are acceptable, he said.
Mowat pointed out that stocks of banks, real estate, IT sector and capital goods sector will perform better.
If we see short-term capital outflows, then the rupee might weaken a bit and the Indian IT companies would be benefited. On a fundamental basis, manufacturing companies would see an improvement in margins as their raw material costs would go down, Mowat said.
India will see strong loan growth as corporates are expected to increase their capex plans.
Mowat is bearish on commodities and energy sector.
Commenting on world economy, Mowat said that the US markets are far from encouraging and global economic data is expected to be mixed, probably on the softer side.
The S&P 500 is likely to stay in the 1000-1200 range and US's reluctance to create new jobs is worrisome, he said.
