Tightening cycle could come soon: Morgan Stanley
9 Dec 2009, 1530 hrs IST, ET Now
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There could be a correction in January if interest rates actually go up
but if growth continues, markets could continue to move up, Sridhar
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*Sridhar Sivaram , ED, Morgan Stanley on the current market. Click to see
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Sivaram , ED, Morgan Stanley said. ( Watch
<http://economictimes.indiatimes.com/videoshow/5318184.cms>)
It is very interesting to see that Morgan Stanley is actually negative on
PSU banks and positive on private sector banks. What would the logic out
there be?
Well, our view is that we could see a tightening cycle coming very soon, may
be in January itself. Typically what we have seen in the past is that when
we have a tightening cycle, the PSU banks tend to underperform this sector
and market in general because broadly they are seen as a bond proxy. Some of
that may have changed, so we would go by that view and we think in a
volatile interest rates environment, the private sector banks are better
positioned as opposed to the PSU banks.
So you would not get tempted to buy into the PSU banks simply because they
are just so much cheaper?
Well, as I just said we are broadly underweight the PSU banks, so I would
not say that within the PSU basket, there would not be banks, which may look
attractive at various points of time but you have to keep in mind that PSU
banks as a basket have always traded cheaper to the private sector banks. So
to that extent, the discount would always be there.
The question obviously comes that there is a possibility of the earnings
moving up because of deposit re-pricing and stuff like that but what we
understand is that this is already known in the market and there is nothing
special about this but what could come as a surprise is the accent of the
CRR hike, the extent of the tightening cycle going forward. We do not where
the inflation currently is because this data is not being shared right now,
but, our own internal estimate is that inflation could be closer to 7.5-8%
by March, which basically would mean that we would have to tighten with GDP
at 7.9%, IIP double-digit growth. These are all ingredient for a tightening
cycle to come much faster than what the market expects.
In light of the fact that yes, there could be a bit of tightening if you
will. What about some other interest rate sensitive? Say for example, real
estate, there are lot of IPOs also in the pipeline currently, one has opened
today. How would you view this space?
Well, I would not comment on specific stocks but as a sector, we would be
underweight the sector. Again with the same view that we would like to stay
underweight interest rate sensitive as much as possible, so real estate is
obviously one of them because of the tightening cycle and obviously as you
mentioned, there is enough paper coming in the market, so there will be
enough movement within stocks because people who already own may want to
look at some of the other stocks. So we would be underweight the real estate
sector also.
Consumer discretionary, which is autos would also be the other sector, which
we would want to stay underweight, especially the passenger vehicle market.
The two-wheeler market is less sensitive to interest rates, so broadly as
you would understand what interest rate sensitive sectors and stocks are. We
would broadly be underweight those sectors, and we will see how things pan
out from thereon.
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