‘Room for RBI to cut rates despite oil price rise’

Friday 26th April, 2019

Article Details
Publication  Business Standard
Source  Bureau
CCM  50.67
Edition  Mumbai
Supplement   NA
MAV  101,340
Language  English
Page  11
Circulation  32,793

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Room for RBI to cut rates despite oil pricerise supply balance and availability of alternatives will act as an automatic mechanism to contain oil prices within a narrow band. That said, with fuel price deregulation over time, the impact of higher oil prices has been increasingly passed on to the consumer instead of it being absorbed. Brent crude oil prices hit $75 a barrel mark for the first time in 2019 on fears of tighter sanctions on Iran. TAHER BADSHAH, chief investment officer for equities at Invesco Mutual Fund, tells Puneet Wadhwa despite the rise, the Reserve Bank of India (RBI) would still have room to cut rates, given the inflation and growth dynamics, and that should allow financial leverage-led earnings growth for the corporate sector. Edited excerpts: How do you think the Reserve Bank of India (RBD will respond to this development? Headline inflation may continue to remain moderate for longer even with individual subcomponents like the food inflation rate going up in the future. Brent oil prices hit $75 a barrel mark for the first time in 2019. Are the markets factoring in the possibility of a higher fiscal deficit due to this? Oil prices have seen volatility within the band of $50-85 on more than one occasion in the past f2w years and have generally been driven by geopolitics. The current demandnear The RBI would still have room to cut rates, given the current inflation and growth dynamics, and that should allow financial of midand small-caps have corrected and, on an adjusted price-to-earnings (PE) basis, now trade at a 25 per cent discount versus the long-term average of 14 per cent discount, and thus appears more reasonable. leverage-led earnings growth for the corporate sector. Can the midand small-caps outperform their large-cap peers in calendar year 2019 (CY19)? We continue to maintain our constructive view of the past six months on midand small-caps, given the continuing attractiveness of valuations in this space. We think midand small-caps are best bought during periods of soft valuations, market uncertainty, and investor indifference instead of in euphoria. Havethe markets run up too fast,too soon? While there has been an 11 per cent rally in the Nifty50 and 1015 per cent rally in the midand small-cap indices in the last two months, India has been among the weakest-performing markets globally. Large-cap valuations at a 35 per cent premium to the long-term average remain a challenge. However, valuations More on business-standard.com