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RBI rate cut unlikely today; will buy mkt on dips: AMP Cap

Shane Oliver, Head- Investment Strategy & Chief Economist, AMP Capital Investors doesn’t expect Reserve Bank of India Governor Raghuram Rajan to cut policy rates today.

Speaking to CNBC-TV18, Oliver says a rate cut can be expected only post the stabilization of Indian economy.

Also read: Most experts don’t see policy rates changes on Dec 2: Poll

On the Indian market, Oliver says that he will continue to be invested and will buy stocks once the market falls as the valuations are expensive now.

Below is the verbatim transcript of Shane Oliver’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: What is your take on the way in which we have seen market capitulate as it were both in Russia and in Brazil? Do you think we are in for one more round of a growth scare, this time concentrating on emerging markets?

A: Possibly but what is going on with those two markets in particular is they fall on the world oil price which is obviously bad for commodity producers or oil producers and of course those two countries a fairly big on that front.

However, more broadly the fall in the oil prices is actually more of a positive. It boosts global growth because it puts downwards pressure on inflation which means the monetary conditions will remain easy for longer and in the US it may have the impact of delaying when the Fed will start to raise interest rates. Therefore, it’s more of a positive for the global economy than negative and when you look at market in this part of the world, they haven’t done too badly including the China share market.

Latha: I take your point that for market even like India, the fall in commodity prices is positive but yesterday it was also accompanied by weak Purchasing Managers’ Index (PMI) data notably from China and Brazil. Do you think that this commodity selloff could exacerbate into an equity selloff or you think that’s unlikely?

A: I think it’s unlikely. I know that PMI has been on the soft side, Brazil doesn’t surprise me; it is a problem country unlike India which had a good election outcome and Brazil did not and Russia fundamentally shot itself in the foot over Ukraine. I would certainly avoid those two equity markets and those two countries but if you look at the other parts, if you look at China, their official PMI fell a bit. It’s been stuck in the band around 50-52 for the last three-four years now. It is bouncing around levels that it has been at for long time and India’s PMI rouse nicely. I think the PMI story wasn’t too bad and of course the US Institute for Supply Management (ISM) index which is equivalent to PMI, its one of the first PMI; it actually remained very high. So the global story putting Russia and Brazil aside is reasonably favourable but the problem is whenever you see a sharp move in something its albeit, for example when euro price falls any due producers get hit and that’s what the US share market come down but the benefit to US consumers and US companies generally will only show about few months ahead but I expect that it will show up.

Sonia: Even if there is a sell-off in the global markets, do you reckon that India could not or may not see such a big fall considering that the growth story is much better than the rest of the world?

A: The flow of data out of India has been more positive, signs that growth is stabilising or improving if you look at Purchasing Managers’ Index (PMI), signs that inflation is fading, all of that sort of things are extremely positive and led to some confidence that interest rates would derive again maybe the next move might be a catch. So I think there is a degree of resilience in Indian share markets. So it is a pretty good run, the valuation is not as attractive but the fundamentals in India are pretty good with stabilising improving growth, falling inflation and of course long-term reform agenda with the Prime Minister Modi.

Latha: Will foreign investors like you be disappointed if the Reserve Bank of India (RBI) were not to cut rates today? A credit policy is scheduled to be announced in about four hours?

A: I wouldn’t be disappointed. I don’t think they will cut today and I don’t think a lot of foreign investors are expecting it yet. I think it is more a story of the early part of next year where the RBI will start to cut interest rates. At the moment, it is probably a bit premature.

Sonia: Given your bullish view on the Indian market, would you be putting incremental money into India at this juncture or would you be scared about valuations?

A: Valuations are quite high and you would be well aware of that. So that reality is that you can see better valuations elsewhere. I wouldn’t be taking money away though I would probably be — if we do have any setbacks then I will be putting money in India often — it is one of those countries that is expensive for a reason and the reason is because when you look at the key emerging countries or the BRICs, India and China are probably the best options out there at the moment. Just that China is a bit cheaper but at least today I will probably go and put money in China but if there were setbacks, I will certainly allocate more money to India.

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