We remain fairly positive on Indian equity: Dhiraj Sachdev

Global markets are in a haze regarding the future prospects. After China’s surprise rate cut, the debate is whether the commodity cycle will revive finally. Bloomberg TV India caught up with Dhiraj Sachdev, Vice-President and fund manager at HSBC Global Asset Management, to discuss the implication of China’s rate cut on the RBI’s rate outlook, and what could revive earnings and the private investment cycle.

Does the China rate cut signal desperation from the Asian giant? What’s the outlook for India?

We remain fairly constructive on Indian equity given the fact that we had seen the monetary stimulus and quantitative easing happening across the world — whether it is in developed markets and also from China.

In terms of the global turmoil and slowdown, the monetary policy has been pretty accommodative from the developed nations, be it the US or Europe.

And now the China slowdown is also triggering the government out there to resort to a rate cut to ensure there is no hard landing. From India’s point of view, I think we continue to remain fairly positive given the fact that India remains relatively faster in terms of growth rates compared to other parts of the world.

Also, over the past few years, we have seen from India the best macro indicators or data points — be it the fiscal deficit, which has been positive due to the lower oil prices, lower subsidies or higher indirect tax collection, or the current account deficit, which is near 1 per cent, and also the fact that the inflation rate has been lower and is likely to be sustainable, whether it is WPI or CPI.

So, for the RBI, which has resorted to about 125 bps of rate cut here to date, there is more room for rate cuts over the next four to six quarters. Our estimate is that the rate cut can be as high as 125-150 bps.

Most are actually pricing in a pause by the RBI. Does the China rate cut boost chances for the RBI to cut further?

We do expect that the lower CPI inflation will be sustained and it will be well within the RBI’s comfort zone — 6 per cent by March 2016 or 5 per cent by March 2017.

So, given the fact that the RBI is also somewhat proactive in ensuring that the revival of growth happens on the supply side of the equation, as well as data points are suggesting that the low inflation regime will continue and environment will sustain for some time to come, I think that will be a trigger point for the RBI to continue and sustain the rate cutting cycle. Besides, the real rate of interest is pretty high and that needs to be narrowed over a period.

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