New Delhi, Oct 7 India's growth and inflation outlook allows for additional monetary support from the RBI and the December policy review could be the final opportunity for a rate cut in the current easing cycle, a report said on Tuesday.
The current macro context provides sufficient space to keep monetary and liquidity conditions supportive of growth, and hence, there remains no case currently to speculate on a policy reversal, SBI Funds Management Limited said in its report.
The Reserve Bank of India’s (RBI) neutral stance and balanced risk assessment sustain prospects for further easing while ensuring liquidity conditions remain supportive of growth. Market participants must stay ready for external volatility and changing expectations, the asset manager stated.
SBI Funds also mentioned that Indian equities have experienced sideways consolidation for over a year, which has brought the earnings-yield to bond-yield spread close to historical medians, cooling sentiment from last year's euphoric levels.
These are favourable indications, suggesting that excesses built into equity prices a year ago are getting corrected, the report noted.
The firm, however, maintained that earnings growth remains challenged, as declining nominal GDP growth has weighed on corporate earnings.
Further, SBI Funds maintained a 'neutral allocation' stance on large-cap stocks, as earnings recovery is anticipated to be gradual amidst a wobbly global backdrop.
Regarding fixed-income instruments, the report said the RBI policy review provided a more balanced assessment of risks, which should provide some support for market sentiments.
Short tenor high-grade bond funds continue to provide higher accruals, wider spreads, as well as an optimum risk/reward that provides opportunities over the coming months as well as into the coming year, the firm advised.
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