‘We made a big mistake on monetary policy’

The Reserve Bank of India may have indicated that rate cuts will happen down the road, but Devina Mehra, chief global strategist of First Global, believes that a lot of the earlier tightening could have been avoided as well. She spoke to Sachin P Mampatta on the sidelines of an event organised by the Asian Institute of Management on Saturday about India’s macro ills, as well as her buy and sell lists. Excerpts:

What are the factors that you would watch over the next six months?
I think global problems will continue to be an overhang right now. As far as we are concerned, I think we made a big mistake on the monetary policy by going on tightening just to show that we are doing something on inflation. It did not help us on the inflation front. Now to reverse that, it will only happen with a lag effect. It is very difficult to get growth back.

There is a perspective that it could have been worse without the tightening…
But inflation was not really being caused by demand. In this case we had international commodities which are not impacted by India’s monetary policy. There are supply issues for agricultural and other commodities; which is the reason why in spite of so many rounds of tightening, you did not see inflation coming down.

To what do you ascribe the recent fall in Indian equities?
There is a bear market in equities in general and India is a part of that. We have underperformed our peers and I don’t see that trend changing in a hurry. The basic fact is that equities as an asset class is not perceived to be the best place to be in globally, and that is the case in India as well.

What is your outlook on earnings?
A year ago you could have said that there are certain issues globally but India is insulated in that our GDP (gross domestic product) is many times what it is globally. Today that is not the case. Corporate earnings have taken a hit and we see that trend continuing for the coming quarters. If you look at the macro factors as well, you see IIP (Index of Industrial Production) falling dramatically, exports slowing dramatically and GDP numbers slowing. These are problems that are peculiar to our economy.

And also you have BoP (balance of payments) problems.

Are there any sectors you are more bullish on than others?
Surprisingly that has not changed over the last year-and-a-half. We have been positive on the same sectors. Parts of auto, parts of FMCG (fast moving consumer goods), parts of IT (information technology). None of those, you can say, are table-thumping buys.

And the ‘sell’ sectors? That’s a long list…
What about, say specific cases such as companies with an FCCB (foreign currency convertible bond) overhang?
You have to look at those very carefully. Those that do not have a natural hedge I think have a problem. If you had a lot of export earnings, that sort of acts as a natural hedge. Even then, it is very difficult...