RBI Monetary Policy in view of inflation data - to beat the confusion, increase exposure in IT heavyweights - Microsec Research

Inflation for the month of May 2012 was at 7.55 percent against consensus estimates of 7.50 and our estimates of 7.61. Surprisingly, inflation for March 2012 was revised upwards to 7.69 percent from initially announced 6.89 percent. Going by inflation numbers it looks unlikely that RBI is going to cut repo rates.

However, 17 out of 23 economists in Bloomberg poll predicts a 25 basis points repo rate cut, 2 predicts 50 basis points cut and 4 economists predicts that RBI will leave repo rates unchanged at 8 percent.

On the CRR front, only 3 out of 20 economists expects a 50 basis points CRR cut and rest of them expects CRR to remain unchanged. Surprisingly, Banking stalwarts like SBI chairman has voiced his opinion that CRR should be cut by almost 100 basis points. Also, in an interview in a leading Business Channel the MD of HDFC Bank Mr. Aditya Puri went on record that CRR should be cut. Other leading Banking personnel has similar views.

There seems to be a complete divergent view between economists and Bankers. We, however, believe that RBI may cut CRR by as much 50-75 basis points, leaving interest rates unchanged.

However, going by the confusion on the RBI Policy, it seems INR is likely to remain volatile and may trade 54-56.50, not to mention Greece event (Election on 17-06-2012) which will also hog the limelight. In such a scenario we recommend to increase exposure in IT heavyweights Infosys and TCS at the current levels, which looks a safer bet against a weak INR.

Source : Equity Bulls

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