Daily Voice: Time for RBI to shift towards tightening, limited room for accommodative stance, says Anuj…

Reports coming in for today mention that Weakening of the indian rupee, elevated oil price marks and rising inflation make a case for the RBI to shift towards tightening, either through rate action or a change in its policy stance, stated Anuj Jain, CIO and co-founder of Green Portfolio, in an interview with Moneycontrol.

According to Jain, central banks have limited room to stay accommodative in the current environment.

Jain believes markets are likely to stay volatile in the near term, given the macroeconomic headwinds and continued FII selling.

A sustained market recovery, that stated, will depend on earnings delivery and greater clarity on the global interest-rate trajectory, he stated.

Do you expect India's exports of manufactured goods to gain firm momentum?

Yes, we do. Geopolitics is changing, and global supply chains are being redrawn as firms diversify away from concentrated sourcing. This re-globalisation is opening significant opportunities for Indian manufacturers, and the momentum is already visible in engineering exports, which have grown strongly in recent months.

India's growing network of free trade agreements is improving market access and making Indian goods more competitive in key destinations. Logistics disruptions linked to the West Asia situation stay a near-term risk for some markets, but the structural direction for India's manufactured exports is clearly positive.

Have private sector banks become significantly cheaper and undervalued at current marks?

Private sector bank valuations have corrected meaningfully. Much of this has been fuelled by sustained FII outflows and worries around an economic slowdown, rather than by a sharp deterioration in fundamentals. Several large private banks still have firm balance sheets, healthy capital buffers and robust deposit franchises, and some now trade at attractive marks relative to their historical averages.

That stated, pressure on margins from loan repricing and elevated funding costs could limit a near-term re-rating, and valuations vary widely across the space. Market participants with a longer horizon may find value, but stock selection will be key.

Do you expect the impact of rising bond yields to start reflecting soon?

Yes, and the effects will likely be felt most at the bottom of the pyramid. Rising yields feed into elevated borrowing costs across the economy, and this comes at a time when inflation has been climbing steadily, and there is uncertainty around income expansion.

As elevated rates pass through to loans, costlier credit will strain softer-income households and small businesses first. Over time, this could weigh on consumption demand, particularly in discretionary and mass-market segments.

Do you see a firm possibility of two to three rate hikes by the US The US central bank over the next three to four meetings, along with the start of a rate-hiking cycle by the RBI in India?

The Fed has already begun tightening, and with inflation still elevated, further hikes look likely. The pace, that stated, will depend on incoming data.

In India, a weakening indian rupee, elevated crude prices, and rising inflation make a case for the RBI to shift toward tightening, either through rate action or a change in its policy stance. Central banks have limited room to stay accommodative in the current environment.

Do you expect US policy to become more focused on supporting the bond market?

Yes, and we are already seeing this, with the US Treasury expanding its bond buybacks. A disorderly climb in bond yields can worsen conditions for the broader economy, because it raises borrowing costs for the government, businesses and households, and it can create stress in the financial system.

We expect bond market stability to stay a key policy focus, whether through debt management measures or by calibrating the pace of monetary tightening.

Despite the challenges posed by elevated crude prices and rising bond yields, do you see a firm possibility of a market recovery in the near term?

Markets are likely to stay volatile in the near term given the macro headwinds and continued FII selling. Even so, steady domestic flows and any improvement in sentiment, such as a moderation in crude prices or signs of stability in bond yields, could trigger short-term rallies.

A sustained recovery, that stated, will depend on earnings delivery and greater clarity on the global interest rate trajectory.

What do you expect from the Q2 earnings season, which is set to begin soon? Do you expect earnings to improve from the June quarter, and could they deliver a positive surprise?

We expect a mixed earnings season, with improvement only on a selective basis. Some sectors may see sequential upside over the June quarter, while others face margin pressure from input costs and elevated interest expenses.

Positive surprises are possible in select pockets where demand has stayed resilient, such as capital goods and export-oriented engineering firms. Overall, this is likely to be a stock-specific rather than a broad-based earnings story.

Are you bullish on the industrials sector?

Yes, we stay constructive on the industrials sector over the medium term. Government-led infrastructure spending, a gradual pickup in private capex, manufacturing incentives and supply-chain diversification toward India all backing a multi-year expansion runway, and the recent resilience in engineering exports reinforces this. Areas such as power infrastructure, defence and capital goods look well placed.

That stated, many stocks in the sector already trade at rich valuations, so we would favour a selective approach focused on order book visibility and execution capability.