Daily Voice | Anil Rego of Right Horizons expects RBI to hold rates as inflation remains high

Anil Rego, founder and fund manager, Right Horizons, expects status quo when the Reserve Bank of India comes out with its first policy decision of 2024 on February 8.

Inflation has been inching up and came in at 5.69 percent in December, close to the upper band of the targeted range by the central bank, Rego said, adding the central bank was unlikely to cut rates.

In an interview to Moneycontrol, the investor with more than three decades of experience advises caution on PSUs stocks, saying many of them are trading at premium valuations. Edited excerpts:

Have you changed your sector bets after the interim budget?

We do not foresee a significant impact of the interim budget on the stock markets and since we follow a bottoms-up approach, our primary focus lies in the fundamentals of the business and its long-term growth. We look at the economic landscape to mainly gauge the structural trends. Though limited, the budget has presented opportunities to specific sectors.

Under the PMAY Housing initiative, the government plans to undertake the construction of an additional 20 million houses in the next five years. The demand for cement and building materials segment is expected to continue to be robust.

There is a proposed 11.1 percent increase in infrastructure spending, amounting to Rs 11.1 lakh crore in FY25. Additionally by allocating Rs 1 lakh crore for innovation, the government plans to introduce a deep-tech scheme for defence. This is anticipated to have a positive impact on defence and infrastructure companies. Tourism sector is likely to gain attention as the finance minister announced projects for tourism.

The government is set to commence work on three significant economic corridors, namely:

(a) Energy, mineral, and cement corridor

(b) Port connectivity corridor

(c) High traffic density corridor

The anticipated outcome includes the decongestion of high traffic corridors, which will contribute to the enhancement of passenger train operations, leading to increased efficiency. Furthermore, the reduction in logistical costs is expected as a positive consequence of these developments.

The government is actively promoting Nano DAP following the introduction of Nano Urea. This initiative is expected to have a positive impact on fertiliser manufacturers. However, it may pose challenges for urea traders.

Do you see a major issue with One 97 Communications, the parent company of Paytm, in the wake of recent developments?

The implementation of significant business limitations on Paytm Payments Bank by the RBI is a result of ongoing failures to comply and supervisory issues revealed during audits.

The regulatory authority has prohibited Paytm from offering additional banking services, including fund transfers, Aadhaar Enabled Payment System, Immediate Payment Service, Bharat Bill Payment Operating Unit, and the UPI facility. Additionally, no new deposits, credit transactions, or top-ups will be permitted in customer accounts, prepaid instruments, wallets, FASTags, National Common Mobility Card cards, etc except for any interest, cashback, or refunds that may be credited at any time.

Paytm had planned to reduce the scale of its BNPL (Buy Now, Pay Later) operations, aiming to offset the impact by expanding higher-value personal and merchant loans. However, given the regulatory measures raise significant apprehensions about its business prospects, investors should monitor how Paytm will navigate through this uncertainty and how the business model will evolve.

What do you expect from the Reserve Bank of India' this week's policy meeting?

Inflation has been inching up the past few months to 5.69 percent in December, close to the upper band of the targeted range by the central bank. So we expect the central bank to hold its stance in the upcoming policy and expect rate cuts to be postponed.

Do you think the private capex spending is back after the budget?

The interim budget was constrained and centered on fiscal consolidation. Nevertheless, there was a notable expectation on the significance of maintaining policy continuity, particularly in the realm of infrastructure spending. The government's proposed capital expenditure outlay of Rs 11.11 lakh crore for FY25 was viewed positively by the market. Private capital expenditure has been selective thus far. Therefore, the infrastructure spending is expected to create a favourable environment for increased participation from the private sector.

Also read: New return forms for FY24 seek more details of tax deductions to eliminate false claims

Do you see more value in PSU stocks after the recent rally?

PSUs have witnessed a remarkable rally, driven by continuous capital expenditure in expanding sectors like railways, infrastructure, power, and defense. However, investors are advised to be cautious when investing in these government-controlled entities since selective stocks within PSUs are trading at premium valuations.

Do you think the government will be able to achieve its divestment target for FY25?

The government of India is likely to fall short of its divestment target for the fifth consecutive year. In the FY24 budget, the government established a divestment goal of Rs 51,000 crore, however, it has only achieved approximately Rs 10,000 crore through disinvestments thus far.

Do you see the possibility of a pre-election rally?

Markets are likely to rally before elections due to anticipation of a stable government or continuation/ introduction of favourable policies that could be beneficial for the economy and businesses. However, the degree of rally is expected to be divergent across industries based on the impact on specific industries or policies. We expect markets to be volatile as elections can lead to uncertainty.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.