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Strategy – Market Correction Inevitable – BNP

February 3, 2010

IN a report BNP Paribas analyst compares the recent RBI move to a Zugzwang move – Compulsion to move. Just like how Credit Suisse came up with a bold report to downgrade India, BNP Pribas is of the view that a correction is inevitable.

Even though long term direction of equities during rate hike cycle is upwards, it is interspersed with sharp corrections. These corrections, mostly associated with repo rate hikes, were in the range of 10% to 20% in the previous rate hike cycle.

The market has painted all stocks – particularly interest rate sensitive stocks – with the same broad brush. In reality, all sectors, and more specifically all stocks within a sector, shall not be affected by rate hikes to the same extent.

Some of the stocks BNP Paribas continues to remain bullish on are – Hero Honda and Maruti large cash generators. Among private banks, Axis Bank and HDFC Bank have a stable growth profile and high CASA and PNB and Union Bank in the PSU lot.

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