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Nifty50 slipped below 18600 and was trading 0.4% down at 18574.80. Sensex was 0.3% down at 62440.05. The Nifty Bank still fared better, as it was down just 0.1% to 43092.05.
Keeping the inflation dynamics in mind, the central bank raised its projection on headline inflation based on the consumer price index for the current quarter and the next quarter by 10 basis points each to 6.6% and 5.9%, respectively.
“We will keep Arjuna’s eye on the evolving inflation dynamics and be ready to act as may be necessary,” RBI Governor Shaktikanta Das said in his policy statement.
Based on the assessment of the macroeconomic situation and its outlook, the RBI undertook a smaller rate cut in the repo rate today, but it did not outright indicate an end to the steep rate hikes.
What do RBI’s assessment and the commentary percolate to for Dalal Street investors? Here’s a look:
Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management
The RBI, on expected lines, hiked the repo rate by 35 bps to 6.25%. The slowing pace of the rate hike and softening inflation make us believe that we are now at the end of the tightening cycle.
The GDP estimate for FY23 has been cut by 20 bps to 6.8%, essentially making the impact of the tightening cycle on economic growth.
We believe that India remains on a strong footing and earnings growth will accelerate making equities an attractive investment option.
Gaurav Dua, Head Capital Market Strategy, Sharekhan by
Given a balanced view, we do not expect any material impact of RBI policy on equity markets even if bond yields have marginally firmed up as an initial reaction to the policy announcement.
The measure to enhance the scope for government securities in HTM (held to maturity) portfolios for banks is a positive step for banks (especially PSU banks).
Interest rate-sensitive sectors like real estate have also reacted positively post the policy announcement.
We remain positive on equity markets in the near-to-medium term with real estate, banks, consumer and engineering/capital goods as preferred sectors.
Anil Rego, Founder and Fund Manager, Right Horizons
The market’s momentum depends on how much the rate is hiked relative to expectations. Surprises generally follow with volatility in the market, however, RBI has hiked the rates hike by 35 bps as per the market expectations.
When the interest rate rises, it impacts both the economy and the stock markets because borrowing becomes more expensive for individuals and businesses, having a ripple effect across sectors.
Higher interest rates mean terminal values are lower as the discount rate used for future cash flow is higher.
A change in stance to dovish going forward by the RBI will lead to a rally in the banking segment while a prolonged hawkish stance will impact deposit rates and lead to narrowing NIMs, more so for public sector banks.
Overall, the economy seems to be in a good shape and a peak rate of 6.7% is not an unusually high number for domestic markets. Thus, we don’t see any material impact on the stock market but we will be watching closely the second-order consumption impact, especially on the consumption side.
Sonam Srivastava, Founder, Wright Research
The RBI policy stayed very aware of the global slowdown and its spillovers while acknowledging the resilience of the Indian economy.
While many were expecting the 35 bps hike to be the last hike in the cycle, the commentary by the governor does not hint about the same, which is interesting, but as the growth projections have been cut going forward, there will be more scrutiny on rate hikes.
The markets had a muted immediate reaction, with little movement on either side.
We see banks staying strong with this announcement as the interest income gets stronger with the rate hike.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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