In an interview with CNBC-TV18, Arvind Sanger, Managing Partner, Geosphere Capital Management, said that inflation is going to be a persistent problem globally and India is no exception to it.

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He said, “Inflation is going to be a persistent problem globally, and India is no exception. And, frankly, RBI has been one of the most dovish, amongst the major central banks in the world, in terms of not moving. The Wholesale Price Index (WPI) has already been giving us warning signals here, it was running in mid to low teens- 13-15 percent in the last several months and now, Consumer Price Index (CPI) is starting to accelerate as well.”

India's retail inflation as measured by the Consumer Price Index (CPI) jumped to 6.95 percent in the month of March 2022 as compared to 4.29 percent reported in the year-ago period.

He believes that the Reserve Bank of India (RBI) may need to raise rates by more than 25 basis points (bps) immediately. “RBI, at the minimum, has to raise rates by 25 bps and maybe more quickly to get caught up on the gap between the official rate and where the 10-year bond yield is, 7.1 maybe going to 7.2-7.3 and yet the official rate is only 4 - that's the largest gap that we have seen in decades, or close to the largest gap, and therefore, they have a lot of catching up to do,” said Sanger.

Also Read: March inflation shocker; street sees early and more rate hikes

Sanger explained that rising rates do not hurt the banking sector. However, a high-interest rate environment will be challenging for industries, he shared. Sanger mentioned that he is cautious about being too aggressive on the equity market.

“Banks may benefit from rising rates, it does not hurt the banking sector. But the question is what happens to industrial demand and loan demand and everything else for banking? I am not sure this is particularly banking friendly. I would say this is a 'commodity inflation hard assets' cycle. Therefore, hard assets is what I would be focused on across the commodity spectrum, maybe real estate,” he said.

“Sectors which are able to sustain pricing power in this environment are not going to be at risk from rupee depreciation, banking will be in between; it may not be my big concern is and part of the FII outflows reflect that it is a concern that with the dovish stance that RBI has taken, there is a correction in rupee coming in and so, there are multiple headwinds for foreign investors. This is why we remain somewhat cautious on getting too aggressive on the overall market,” said Sanger.

Watch the video for the full interview.

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First Published:Apr 13, 2022 9:39 AM IST