Daily Voice: This CIO believes that the RBI will become "neutral" in the next quarter and that a rate drop will have to wait

Daily Voice: This CIO believes that the RBI will become "neutral" in the next quarter and that a rate drop will have to wait

According to Ajit Banerjee, the central bank is still upbeat about development and has projected GDP growth of 7% for the fiscal year 2025—a figure that exceeds market estimates.

Shriram Life Insurance's Chief Investment Officer is Ajit Banerjee

Ajit Banerjee, Chief Investment Officer of Shriram Life Insurance, thinks the Reserve Bank of India may become "neutral" in the first quarter of FY2025 provided GDP and inflation figures hold steady with its forecasts.

It may then take into account a rate reduction from the third quarter. With over 29 years of expertise in a variety of industries, Banerjee predicted rate reductions this calendar year in the range of 25 to 50 basis points.

On February 8, the RBI maintained its "withdrawal of accommodation" position and kept the repo rate at 6.5%.

According to Banerjee, oil marketing businesses were the only industry with low PE and low values. "There seems to be a lot of money moving there. In an interview with Moneycontrol, he said, "This trend will continue for some more time." Revised passages:

In calendar 2024, do you think the RBI will lower repo rates by 50–100 basis points if inflation stays at 4 percent?

The Monetary Policy Committee (MPC) continued to prioritize maintaining disinflation in order to meet its medium-term inflation objective of 4 percent. Given that GDP growth in FY2025 is expected to be strong enough at 7% to reach the 4% inflation objective, the RBI has the leeway to maintain the repo rate at its current level.

If the GDP growth figures are also fulfilled, we may anticipate that the RBI will take into consideration changing its stance to "neutral" in Q1FY25, depending on whether the inflation figures are near to 4%. The central bank may then take rate-cutting measures starting in Q3FY25. Therefore, rate reductions in the 25–50 bps range are to be expected this calendar year.

Do you believe that the RBI will adhere to its growth and inflation projections for the next fiscal years, FY24 and FY25?

The central bank is nevertheless upbeat about growth, estimating that GDP would expand by 7% in the next fiscal year, which is higher than other forecasters. In terms of inflation, the RBI slightly reduced its estimates for Q4 of FY24 and FY25, estimating that average inflation in FY2025 would be 4.5%.

The central bank did, however, adopt a cautious approach to concerns related to domestic and international supply, emphasizing that the last stage of deflation may be the most difficult, necessitating that it stick to its plan to remove the accommodation. We may thus anticipate that the RBI will maintain these economic projections unless there is a compelling reason to assume a change in these rates over the course of the following two quarters.

After a huge surge over the previous several quarters, can capex-led equities have a short-term reprieve?

The government's goal in this year's interim budget has been to restore fiscal consolidation, and in order to do so, it has made certain specific allocations for capital expenditures.

The government's sector-specific proposals primarily aim to support rural and urban housing, give low-income households access to LPG, and stimulate private sector investment in developing industries (clean energy) through feasibility the disparity financing and energy transmission. The three major economic railways' large implementation when outlay are related. corridors.

Additionally, there is a moderating trend in the rise of capital expenditures in the railway, road, urban infrastructure, fertilizer, and defense sectors.

As a result, we must observe how the private sector reacts to the government's demand for capital expenditures at the local level. I think that once the new administration becomes office and delivers the whole budget, there will be more clarity on this. We do not anticipate any notable change in these shares till then.

Do you believe that there is a good risk-reward ratio in China?

The Chinese equities market's valuations are quite appealing; they are less than nine times, or around 25% less than the Asian market—apart from Japan—and 55% less than the US market. According to a recent Bloomberg study, several international portfolio investors have started to express interest in the Chinese equities market despite the general pessimism surrounding the Chinese market and economy.

Therefore, we may see some allocation from long-term investors into Chinese equities markets if there is an overall increase in the confidence levels of international portfolio investors.

Regarding gas distribution and oil marketing businesses, how confident are you?

Oil marketing firms are now the only industry with low PE and cheap values accessible, and a lot of money is being poured into them. There is still some time left in this trend.

At the moment, long-term modifications are being seen in the values of gas distribution and oil marketing organizations. Overall, the benefit is that there is a lot of pricing freedom because of the low oil prices, which means that the marketing margins for these oil marketing organizations will either stay the same or perhaps grow.

Furthermore, a few of the company's earlier refining expansion projects are now operational and will increase profitability. Brownfield growth contributes to refining margins, which are still relatively good and will increase return ratios and asset productivity.

But these businesses' profitability is probably going to be tested if oil prices start to climb.

Will the Fed announce a rate reduction in June rather than March?

While pointing out that inflation is "still very high" and that a rate decrease in March is improbable, Fed Chairman Jerome Powell also recognized that the rate-hike cycle has peaked.

As a result, the March Fed rate decrease looks improbable and may be discussed at the June policy meeting.