Market waiting for RBI policy fine print today for negative hints on future rate action: DSP interview

While the Reserve Bank of India could maintain status quo at the MPC meet announcement on April 5, the fine print from the monetary policy will be given a lot of importance, said Souvik Saha, Investment Strategist at DSP AMC. "People would be waiting to read the fine print because there could be a lot of words which will be used, which will probably give a direction in which way the RBI is thinking," he said in an interaction with Moneycontrol.

Edited excerpts:

What is the market watching for from the RBI MPC meet?

Today how the world looks into India is that India is a growth story. But today, whatever capital expenditure in India is taking place is all government-related. There has been no sign of a private CapEx yet. For the India growth story to continue, private CapEx really needs to pick up. Inflation has remained low for a larger period of time. However, after the Red Sea crisis, the commodity prices have started picking up. The supply chain has been again disrupted. That is going to boil up into commodity prices and then to inflation. I am sure the policymakers are very much cautious. This becomes really important because you don't want the situation where inflation keeps going up and up because of global tensions.

Track all the updates from MPC outcome today here

The US Fed has already highlighted the end of the tightening cycle. But the quantum of the cut has not been described. So, the RBI could also like to take the same status and give some indication of following the similar line of a trajectory. I think the fine print from the monetary policy will be given a lot of importance; people would be waiting to read the fine print because there could be a lot of words which will be used, which will probably give a direction in which way the RBI is thinking.

Does the market have any concerns on consumption? Can the RBI address those?

From a market point of view, we must consider that India is a consumption story, but the consumption part has been struggling big time. So, how do you bring back consumption? One way is to have slightly lower interest rates because the discretionary spending has remained very low. Now, in recent times, the RBI has been very cautious about the small finance bank lending. If there is a rate cut, then it would support the spending but the loan book would increase as well. So, that would be a very tricky situation where lowering interest rates will actually boost consumption.

On the other hand, one could say that probably the demand is not that great, which has been the reality recently both in India and globally. Thus, we start witnessing earnings cuts, which will directly push the market into negative sentiment.

On one hand you sound cautious of the inflation situation, and on the other you say there is a case for lower rates to boost consumption -- how to balance that?

I think the case is there for a rate cut to happen to give a boost to the consumption, but the risk is the inflation inching up.

What are the investors looking for from the RBI? What kind of announcements could impact the markets?

I think less negative will be a very good positive for the market. Which is why a lot of people will look at the fine print. That will give a very clear indication of what the RBI is actually thinking and what are the probable steps it is planning to take in the near future. Anything which is broadly positive or gives some indication towards RBI taking a neutral stance and maintaining their status quo on the rates, that might be taken positively for the market.

You mentioned the caution on inflation from crude oil and the Red Sea crisis. But is that caution seen in the current market behaviour?

You are right. As of now, the market is not factoring caution. But if you look at the consumer companies, you will realise that the input prices of palm oil, crude oil, etc play a very big role as a raw material input prices for these companies. If any increase in those raw material prices leads to an increase in their selling prices, especially in a market where consumption has not been in the best of shape, that may hurt volume sales.

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