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'We expect the second half of 2011 to be a better time for the markets'

Kedar Deshpande, Head (Retail Broking), Edelweiss, tells Rahul Oberoi why the Reserve Bank of India could further tighten policy rates in the next few months.

Rahul Oberoi/Money Today | Print Edition: March 2011

Kedar Deshpande, Head (Retail Broking), Edelweiss, tells Rahul Oberoi why the Reserve Bank of India (RBI) could further tighten policy rates in the next few months.

How do you see the current rate hike by the apex bank?
The RBI has been facing challenging times with weak trends in the Index of Industrial Production (IIP) and slow down in growth on one side and continued rise in inflation on the other. The apex bank has clearly stated that price stability is the priority and hence further tightening is expected in another three to four months.

Since Diwali, all major banking stocks have dipped. How do you see banking stocks performing in the next four to five months given that you expect further rate hikes?
The banking sector has been one of the biggest losers in this correction. There are concerns with regard to the impact on net interest margins on account of rising interest rates. Going forward, we expect banking stocks to move sideways as the impact of rate hikes would be visible in the results over the next two quarters. We are underweight on banking in our model portfolio.

Where do you see the stock market by the end of 2011? Do you think the stock market could give double-digit return by the end of this year?
Foreign institutional investors (FIIs) have been net sellers since the very start of the year. We expect the second half of 2011 to be a better time for the markets with the sentiment getting better at that time.

"The RBI has clearly stated that price stability is the priority and further tightening is expected."
Where do you see rate-sensitive realty and auto stocks after the rate hikes?
We are underweight on both real estate and auto sectors. We have been recommending staying away from real estate as we are seeing slow activity in the sector and expect prices in some pockets to correct by 15% to 20%. Further, concerns on corporate governance would still be a significant overhang for the sector.

Do you think the rate hike by the RBI will slow down the pace of inflation? Where do you see the inflation figures by the end of March 2011?
We expect inflation for March 2011 to come in at 6.5%. This apparent moderation in inflation would be driven by a high base effect, which will play a favourable role. However upside risks to inflation remain due to rising global commodity prices and increase in food inflation.

Which sectors could be safe for investors this year? Also, with manufacturing costs increasing continuously, do you think that it could impact the annual results of companies?
We are bullish on the commodity sector with increasing commodity prices providing a fillip to energy company margins and bottom lines. Another play we like is the information technology sector and we are overweight on this sector as well.

What is the call on the commodity universe?
We like the global commodity space, especially oil and gas and metals such as steel and aluminum. The call over here is the recovery in developed markets such as the United States.

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