Nilesh Shah, MD, Kotak AMC, says “the monetary policy is reaffirming that RBI’s policy will create stability in the financial market, trust in the financial market, and growth for the Indian economy. The equity markets today will be less bothered about food inflation. It is more dependent upon nature’s movement. With the monsoon likely to be normal, hopefully food inflation will remain under control and which is where, RBI’s own estimate of FY25 inflation, at 4.5% is lower than in FY24.”
The Monetary Policy was much on expected lines. The Reserve Bank of India has kept the repo rate unchanged at 6.5%. How is your outlook in terms of the kind of linkage that we are seeing with the overall market because while the midcap index has somewhat recovered, the market has maintained status quo and not moved. Is it to do with the lingering worries about food inflation persisting down the line?
Nilesh Shah: The 90th year celebration of RBI had three words attached to it — stability, trust, and growth. This monetary policy is reaffirming that RBI’s policy will create stability in the financial market, trust in the financial market, and growth for the Indian economy. The equity markets today will be less bothered about food inflation. It is more dependent upon nature’s movement.
With the monsoon likely to be normal, hopefully food inflation will remain under control and which is where, RBI’s own estimate of FY25 inflation, at 4.5% is lower than in FY24.
For the equity market, the biggest worry will be complacency. We are trading at a valuation which optimistically discounts many events — election, Fed pivot, earnings growth – all are discounted in a very positive manner. This should not create complacency. Other than that, as you mentioned, markets are in reasonable shape.
Just to delve deeper into that, what about the banking sector as a whole? It was fairly muted of late, but the kind of support that you are getting from the RBI and the other decisions and the fact that there is perhaps going to be a rate cut at some point of time during the year, What do you make of the private banking space? Also what are the rate cut expectations?Nilesh Shah: My feeling is that the RBI is unlikely to hurry in rate cuts. Unlike the US Fed, which needs data to cut rates, RBI has the ability to wait because our growth is well above our expectations. From the banking point of view, deposits remain very important and banks which have deposit franchises, and access to low-cost deposits, are likely to do well. Today, fortunately, on the asset side, almost all banks, be it private, be it foreign, be it small, be it big, be it public sector, are looking similar. Their NPAs are fully provided for, those NPAs are transparently declared. There is no differentiation on the asset side. Even the growth is converging. The most important thing will be deposit franchisee. Right now, liquidity remains tight. In March, RBI’s intervention has relaxed it a little bit, but liquidity still remains tight. Undoubtedly, banks will have better deposit franchisees and access to low-cost deposits and markets will perceive them favourably.
