Rate cut at upcoming MPC meet not a certainty, says Bajaj Finserv CEO AMC

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While increasing hopes of a rate cut at the upcoming Monetary Policy Committee meeting would be priced in, that might not be a certainty given the downward pressure on the rupee and its consequent impact on capital outflows, Mohan, chief executive officer at the fund house, told Mint in an interview.

Edited excerpts:

The budget has provided higher-than-expected income tax relief to the middle and lower middle class, but markets seem to have been disappointed by the capex revision and estimate for the next fiscal. Your take?

Yes, the budget has provided greater-than-expected income tax relief. The allocation to capex is also reasonable—it has grown at a fair pace. However, some companies, based on valuations, appeared to have anticipated more favourable capex announcements from the government. While this may lead to some disappointment, capex growth remains on track. That said, earnings revisions moving forward are likely to be more pronounced in consumption-based stocks compared to capex-driven market opportunities.

Have markets digested the budget or do you expect some reaction, especially on Monday?

The market will take some time to adjust to the budget. On the first day, volatility is influenced by technical factors and pre-positioning by market participants, leading to immediate but often spontaneous movements. However, within a few days, things should stabilize, allowing a clearer view of earnings trends, growth direction, and emerging opportunities in the market.

Read more: 100% FDI in insurance a positive for the sector but not for its stocks

Additionally, the market will need time to absorb changes in allocations and react to sector-specific measures introduced by the government. For instance, various duty adjustments, including import duty cuts, require a thorough analysis of the budget document and finance bill. As a result, stock-specific movements are likely to continue over the next few days.

Currency volatility adds another layer of complexity for the RBI, as any decision to cut rates could exert pressure on the rupee.

We have a monetary policy meet outcome this week and though markets are discounting probability of a rate cut, one looks difficult given that it could hasten FPI outflows amid Trump-induced trade wars. What’s your take?

Currency volatility adds another layer of complexity for the RBI, as any decision to cut rates could exert pressure on the rupee. The central bank will likely tread carefully, especially in a global environment marked by rising tariffs and counter-tariffs, leading to increased trade uncertainty.

Fortunately, the budget’s fiscal consolidation provides some leeway for the RBI. However, a rate cut in this week’s monetary policy meeting is not a certainty. The market is aware of this, not necessarily due to domestic conditions but primarily because of external factors.

On FPI outflows, what’s the sense you get?

FPI risk persists as long as US bond yields remain high, but India-dedicated flows are still positive. FPI holdings at 16%, near a decade low, indicate room for reallocation as India’s growth outpaces that of major economies. While India’s growth differential acts as a defence against outflows, it cannot fully shield against global trends. Strong macro fundamentals and earnings growth will eventually drive renewed FPI interest as global conditions stabilize, reinforcing India’s investment appeal.

Are we in a global risk-off environment?

We are not in a global risk-off environment, but higher global interest rates—especially with US 10-year yields at 15-year highs—have increased the expected return from riskier assets like emerging market (EM) equities. For EM equities to become attractive again, either US 10-year yields must decline, or EM equities must correct. Currently, we are seeing the latter, as EM equities adjust to higher yield expectations. This correction reflects the market’s repricing of risk amid tighter financial conditions, making EM assets less appealing until yields stabilize or valuations become more attractive.

We are avoiding trendy and overhyped sectors, instead focusing on areas that offer attractive valuations and solid business quality.

What’s the strategy from hereon as an Indian mutual fund?

We are avoiding trendy and overhyped sectors, instead focusing on areas that offer attractive valuations and solid business quality. We continue to focus on our investment philosophy “INQUBE’ and focus on the long term. Each of our funds is based on differentiated strategies. For instance, our Flexi Cap Fund is based on the megatrends investing strategy, Large and Mid Cap on the Moat investing strategy and our upcoming Multi Cap Fund is based on a contrarian strategy.

Do you worry about SIP flows in this disruptive financial landscape with so many moving parts?

The understanding of mutual funds and equity markets has improved in recent years, along with investor maturity in handling market downturns. However, for first-time investors, especially those who began investing in the past year, this will be their first experience of handling negative returns. It would be interesting to observe how they navigate this phase.

China has disrupted the AI landscape with its startup, which is cheaper and as good, if not better. What’s the fallout for global tech and Indian tech, if any?

Chinese AI startup Deepseek has put the global AI community, markets, and social media in a state of disarray with the release of its latest large language model on January 20. While everyone is still trying to understand the complete ramifications of this, it is widely accepted that DeepSeek has used clever innovations to bring down the cost of development of large language models (LLMs). Till now, the entire focus of genAI was on training models, without much thought on commercialization. With the latest developments, there is expectation that commercialization in genAI will begin sooner than previously expected. While the true cost of training and development of the models released by DeepSeek is disputed, the recent events will likely lead to faster AI adoption. Global tech companies will see proliferation of new LLMs with the aid of opensource models (DeepSeek V3, R1, Meta Llama, etc). Software companies are expected to see more application development as the world progresses to inference from training. Indian tech companies also stand to benefit as the IT services companies will help their clients implement AI/genAI for their business requirements.

Read more: Budget winds fill the sails of retail investors. Will it last?

How have the earnings been so far in Q3 and where are you laying your future bets?

The earnings season has been mixed so far, with a balanced number of hits and misses. We don’t anticipate significant changes in the FY25 consensus EPS post-results. Management commentaries indicate some urban slowdown but improving rural demand. We remain constructive on pharma and consumer staples, with rural-focused businesses likely to perform well in the near term. We are also getting incrementally positive on technology and deep cyclicals like commodity.

Is the renewable/EV green theme over?

Recent policy changes in US (with the new government taking guard) suggest the focus will be towards conventional energy sources instead of renewables. However, the rest of the world is continuing on its path to increasing green energy sources. While there a possibility of the green energy theme taking a pause for some time as demand supply dynamics settle down, the green theme is structural and will pick up after a brief lull.



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