First views of broking houses, mutual funds on inflation at 11.05%

[K.Karthik Raja]

First views of broking houses, mutual funds on inflation at 11.05%
Friday, Jun 20
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MUMBAI - Compilation of initial reactions of broking houses and
mutual
funds on India's headline inflation rate hitting a 13-year high of
11.05% for
the week ended Jun 7 from 8.75% a week earlier.
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BROKING HOUSES
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PAUL SCHULTE, CHIEF REGIONAL STRATEGIST, LEHMAN BROTHERS, HONG KONG
All countries in Asia are experiencing powerful inflationary
pressure. Short
of currency appreciation, many investors are deeply worried that
almost all
central banks--including India--are quickly losing credibility as they
watch
inflation accelerate without doing anything.
Those central banks, which bite the bullet and tighten, will be
rewarded
later--in spades. But many central bank governors are giving into
political
short-term pressure groups, which will not tolerate short-term pain.
WebLink://Click here for story:/id=10764 - 20-06-2008/go
RANJIT KAPADIA, HEAD OF RESEARCH - PRIVATE CLIENT GROUP, PRABHUDAS
LILLADHER
Inflation is definitely more than expected. RBI would probably
look at an
interest rate hike of 50 basis points or above. Market has already
reacted
negatively, and it can slide further. Sensex may touch 12000-13000 in
a
month's time as inflation will only get higher going forward and maybe
touch
13-14%. I would advise sitting on cash right now
WebLink://Click here for story:/id=10561 - 20-06-2008/go
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BHAVESH SHAH, HEAD OF RESEARCH, ASIT C. MEHTA INVESTMENT
INTERMEDIARIES
This is a very bad situation for India. The corporate world is
going to have
a tough year ahead with more pressures on growth and profitability. I
expect an
immediate action from Reserve Bank of India. I don't see them waiting
until
July-end. There may be a 50-basis-point hike in cash reserve ratio.
WebLink://Click here for story:/id=10557 - 20-06-2008/go
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PARESH KHANDWALA, MANAGING DIRECTOR, KHANDWALA SECURITIES LTD
The entry of inflation in double-digits was as per expectations,
and not
a surprise, due to the surging crude oil prices. This may see RBI
raising CRR
(banks' cash reserve ratio), to squeeze liquidity. However, by doing
that RBI
will be touching the wrong nerve of the economy, as the free float
money in
the market is not the problem. The government should ban oil futures
on the
commodity exchanges in the country and send a message to the world.
WebLink://Click here for story:/id=10547 - 20-06-2008/go
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HITESH AGRAWAL, HEAD OF RESEARCH, ANGEL BROKING
This is an absolute surprise, no doubt way beyond our
expectations.
Inflation above 11% is a serious setback and has now become critical.
Now we
would see more stringent measures from RBI to clamp down on inflation.
A
50-basis-point repo rate hike seems very much on the cards. It is best
to
adopt a wait-and-watch approach to see RBI's reaction to this, and
investors
would have to broaden their investment horizon because in six months,
Sensex
crossing 16000-17000 also seems difficult now. Information technology
and
pharmaceutical would be the preferred space to invest in right now.
Interest
rate dependents like banks, real estate, and infrastructure are best
avoided.
But once inflation comes under control, banking space will be the
first to
bounce back.
WebLink://Click here for story:/id=10528 - 20-06-2008/go
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SHAHINA MUKADAM, RESEARCH HEAD, IDBI CAPITAL MARKET SERVICES
We had expected a double-digit inflation figure and the (share)
market
had discounted inflation at 10.5%. But this is worse than we had
thought.
However, this (inflation surge) is likely to continue for another
three-to-four months because of high prices of crude and other
commodities.
Oil prices are the key and they have to come off for inflation to
soften.
There is little room for the government to control inflation. They
have
already tried to control prices of steel but these short-term measures
would
have an impact on the government's fiscal deficit. It is possible the
Reserve
Bank of India will hike banks' cash reserve ratio--as it seems the
only thing
that can be done is to control liquidity. So they (the government) may
allow
growth to slow down to control inflation.
WebLink://Click here for story:/id=10470 - 20-06-2008/go
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SACHCHIDANAND SHUKLA, CHIEF ECONOMIST, ENAM SECURITIES
This is an alarming number given that everybody had expected
inflation
around 10%. But this does not mean India is having a widespread
inflationary
problem. The high inflation is due to disproportionate numbers in
certain
commodities. I expect inflation to remain around 10% till August-end.
It
should moderate after that. Our worry is that the monetary policy
should not
overreact to these numbers as it is very clear the high inflation is
due fuel
price hike and supply side factors.
WebLink://Click here for story:/id=10464 - 20-06-2008/go
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MUTUAL FUNDS
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SANJAY SINHA, CHIEF INVESTMENT OFFICER, SBI MUTUAL FUND
This was not expected. The worry is not that it (inflation) has
reached
double-digits, but how long it will remain there. If inflation rate
continues
to remain in double-digits for a few more months, it will further
impact the
Indian financial market.
WebLink://Click here for story:/id=10617 - 20-06-2008/go
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SHAILENDRA JHINGAN, FIXED INCOME HEAD, HSBC MUTUAL FUND
RBI can take action any time now. They may hike repo rate by 25-50
basis
points. RBI wants to keep liquidity tight, which it has already
managed to
do. To tighten liquidity further, it will hike CRR (banks' cash
reserve
ratio) by 50 bps on policy day. Ten-year, 8.24% gilt is headed towards
9%.
Inflation will stay elevated for a couple of weeks and it is possible
that th rate can touch 12%.
WebLink://Click here for story:/id=10587 - 20-06-2008/go
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MURTHY NAGARAJAN, FIXED INCOME HEAD, MIRAE ASSET MUTUAL FUND
RBI will take action in a week's time to tame inflation. We are
expecting
a repo rate hike of 25 basis points and CRR (cash reserve ratio
maintained by
banks) hike by 50 bps in policy (end July). Markets will remain
bearish. The
10-year benchmark 8.24% bond can go to 8.70-8.75%. Short term paper
rate can
touch 9.25%.
WebLink://Click here for story:/id=10544 - 20-06-2008/go
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PARIJAT AGRAWAL, FIXED INCOME HEAD, SBI MUTUAL FUND
Market had discounted 10%, but this has come as a surprise to us.
RBI
will not take any immediate action. They will wait for a week and then
might
hike repo rate by 25 basis points or even 50 bps. The debt market will
remain
bearish, and the 10-year benchmark 8.24% bond can touch 8.75% if
negative
news continues to pour in.
WebLink://Click here for story:/id=10455 - 20-06-2008/go
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End
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