India funds raise cash on bets RBI will turn hawkish on policy
Equity investors in India have been increasing the amount of cash they’re holding ahead of the central bank’s interest-rate decision later Friday.
That’s because they’re expecting an increase in borrowing costs and want to have plenty of money to deploy when it’s time to invest again. They’re also looking for the Reserve Bank of India’s comments on the outlook for inflation and economic expansion as soaring oil prices and a weakened rupee have triggered concerns over corporate-earnings growth.
“We’ve raised cash in our portfolios and our focus is to identify quality franchises that are approaching cheap valuations, particularly in the consumer space,” said Sunil Sharma, who oversees $1 billion of assets as chief investment officer at Sanctum Wealth Management Pvt. in Mumbai. “The markets are clearly suggesting worries about growth and would cheer if policy makers come out ahead of the curve.”
A focal point for investors will be whether the central bank drops its neutral stance in place since February 2017. Policy makers are expected to raise the key repurchase rate by 25 basis points to a 2-1/2 year high of 6.75 per cent, according to 40 of 49 economists in a Bloomberg survey, with the rest expecting no change. An altered stance would be a clear signal that the RBI will continue raising rates in the coming months.
The S&P BSE Sensex Index has tumbled 9.6 per cent since reaching a record in August, with almost $300 billion of Indian stock values vanishing as oil prices have risen, the rupee has dropped and a private lender has defaulted. India’s equity market has sunk below the $2 trillion value for the first time since August 2017.
Sharma isn’t the only one. Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance Co., and Vikas Gupta of OmniScience Capital have also been raising cash.
“We plan to buy some good quality — but expensive — stocks as they decline over the next four months,” Gupta, OmniScience’s chief investment strategist, said in an interview. “Market sentiment will remain weak as the RBI will have to turn hawkish and will be biased towards further rate increases.”