<div>Gyan Harlalka, managing director & head sales, RBS India was surprised by the RBI's decision to slash cash reserve ratio (CRR) rates by 25 basis points (bps) to 4.25 per cent. He had been expecting a 25 bps cut in repo rates. He feels RBI is still worried about inflation and continued high fiscal deficit and that’s the reason why the central bank didn’t bite the bullet. However he expects them to cut rates by at least 25 bps by March 2013.<br /> <br />Meanwhile the market reacted negatively with the 10-year G-Sec yield after trading at 8.11 per cent before the monetary policy ended the day at 8.18 per cent, losing close to 50 paise (7 bps) in a day. Harlalka expects the 10 year G-Sec to remain in range of 8.10-8.20 per cent, but his advice to investors will be to buy bonds, especially 5-10 year paper as its more liquid.<br /><br />Excerpts:<br /><br /><strong>What are your initial reactions to the policy? Was it a surprise to you with the central bank cutting CRR?</strong><br />Yes we were surprised with cut in CRR. On the contrary we were expecting a 25 bps cut in repo rates which didn’t materialise. RBI continues to give more weightage to inflation which has been quite sticky. It seems the RBI is waiting to see the impact of recent policy measures by the government as well as future responses to growth. With liquidity likely to remain under pressure, the CRR cut is more in line with market expectation. The 50 bps CRR cut in April 2012 by the RBI was in anticipation of government action on the fiscal and policy fronts. <br /><br /><strong>In your view why is the central bank delaying cutting rates? What is your view on the Indian economy and market? Do you see growth being hampered?<br /></strong>The sticky inflation and the continued high fiscal deficit are probably the reasons for the same. The economy seems to be stablising with growth in the 5.5-6-per cent range. The growth seems to have bottomed out at current level. However, the upward movement in growth is expected to be gradual.<br /> <br /><br /><strong>Do you think RBI will bite the bullet in March 2013? And why?</strong><br />A lot depends on inflation, which will be guided by commodity and food prices. If they soften, we should see action by the RBI. But yes we expect to see RBI cutting rates by March 2013, by at least 25 bps.<br /><br /><strong>What is your outlook for the Indian Bond market? The G-Sec climbed higher with no rate cut. Where do you see the G-Sec yield in the coming 3 months? Do you think it is good time to buy G-Sec (what would be the tenure) and why?<br /></strong>With the rate cut not materialising nor any guidance for the same, 10 year G-Sec are expected to remain in the 8.10-8.20 per cent range with minor breaches on both side. We are of the view that bonds are good buys on upticks, with 8.20-8.25 per cent good levels to go long. With growth and inflation stablising at current level, RBI will ease sooner or later. <br /><br /><strong>What is your advice to your clients? Which instruments will you advice them to invest going ahead and of what tenure?<br /></strong>At this juncture when growth seems to have slowed down and stabilising in the 5.5-6.00 per cent range, debt instruments present a good investment opportunity, especially the 5-10 year mid segment.<br /><br /><strong>What is your take on the corporate bonds? Will you be a buyer in corporate bonds and what would be the tenure?<br /></strong>Corporate spreads over government securities are currently very low due to sluggish demand from the industry. Corporate bonds remain attractive from directional perspective rather than spread compression perspective. Meanwhile we are a buyer in corporate bonds, in the 5 year bucket which is liquid.<br /><br /><strong>What is your take on the Indian currency? Where do you see it going by March 2013?<br /></strong>We see a gradual appreciation trend with lot of volatility and around 52.50 levels by March 2013.<br /><br /> </div>
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