Srividhya Rajesh, a fund manager at Sundaram Mutual, comments on the outlook for Indian stocks. Chennai-based Sundaram manages $3.3 billion in assets. She spoke in an interview in Mumbai today.
The Reserve Bank of India increased the benchmark repurchase rate by half a percentage point to 7.25 percent yesterday, the biggest move since July 2008, and Governor Duvvuri Subbarao forecast the economy may grow about 8 percent in the year through March from 8.6 percent in the previous year.
On rate increase:
“We have seen a series of rate hikes and the impact of that will start hurting growth. The Reserve Bank of India had refrained from doing this in the past as they did not want to hurt growth. Given the global uncertainties, growth was a priority. We did not expect this kind of prolonged phase of high inflation. To that extent everyone has been surprised. The underlying growth momentum is still fine; it’s just that the near-term pressures are all staring at us at the same time.”
On inflation:
“Inflation should start trending down because a 50 basis point increase in rates is a pretty strong measure. Inflation should start cooling off in the next three to six months. If that happens, it will be a positive signal for the markets.”
On corporate earnings:
“Margins will be under pressure. In the near term there will be earnings downgrades. For the year ending in March 2012 we will see 17 percent to 18 percent earnings growth compared with the 20 percent to 22 percent estimated earlier.”
On investment strategy:
“We will have a relook at the consumer shares in our portfolio after three to six months. It will depend on inflation, government policy action, monsoon and the rural economic growth.”
Shares of lenders, fast-moving consumer goods, automakers and telecom companies form the biggest part of Rajesh’s portfolio. She declined to comment on specific shares.
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