Ajay Bagga picks out his top contra bet in this market

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For India, especially, if you see the real interest rate if you take the repo of 4.9% and reduce it from the inflation you get a negative real interest rate so clearly there is some catch up that the central bank needs to do, says Market Expert Ajay Bagga in an interview with ET Now. Edited excerpts:

The most important cue to watch out for is the RBI monetary policy meeting from August 3rd to 5th now. A large part of the street is expecting there is going to be a 35 to 50 bps hike. Are you in the same camp?
Yes, definitely and I would vote more for 50 bps because given the level of inflation, given the kind of interest rate hikes by central banks around the world about 83 rate hikes above 50 bps have been done in the last four months, 83 rate hikes so clearly central banks have been behind the curve, have been late to come in.

For India, especially, if you see the real interest rate if you take the repo of 4.9% and reduce it from the inflation you get a negative real interest rate so clearly there is some catch up that the central bank needs to do.

Second, in terms of protecting the rupee it will be critical to increase the rate so I am expecting on the higher side may be a 50 bps and then that leaves a small window of 25 bps hikes over the next six months.

Can you pick out top sectoral themes that investors should look at?
I think in a very straightforward sense, private sector banks – the top four-five banks – keep with that, and in a contrarian sense – IT. The demand is not going down and the level of work that our companies do that demand is evergreen so the margin issues have been there, the staffing issues have been there, the turn over issues, but look at the Amazon numbers on the growth of their cloud business, look at the Microsoft numbers – I think in quite a lot of key segments our IT companies will see growth so it is a good time to start nibbling into IT not all in but 25-30 per cent of the IT funds can be applied now. I think it is a good point, valuations are still not cheap, may be one more quarter of a bit of a correction, and then we see them coming back but it is a good entry point.