Stock Market Highlights: Indian equity benchmarks BSE Sensex and NSE Nifty50 tumbled more than two percent on Wednesday, extending losses to a third straight session, after the RBI’s shocked the Street with a 40-basis-point hike in the repo rate — or the key rate at which it lends short-term funds to commercial banks.
Rumki Majumdar, Economist at Deloitte India, is of the view the RBI’s policy action shows the central bank’s intent to act swiftly before inflation derails the growth recovery.
With the Fed expected to raise policy rates aggressively and correct its balance sheet, the RBI does not have much of a room to maneuver but to raise policy rates from a decadal-low level, where it has stayed for over two years,” she adds.
“While we are bracing for the US markets to kind of give us some sort of an indication of inflation being persistent and rate hikes to be continuous, this is definitely something that has come as a surprise.
“If that were to go through, because that will absorb a lot of liquidity out of the market, there is some time before the market restores its strength…
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, is of the view that the timing of the RBI’s move to hike the rate is clearly surprising.
By the time we end the year, I do expect that we would be back to the pre-pandemic levels, which is 5.15 percent.
“It’s surprising and normally when this kind of an unscheduled statement by Governor, the natural suspicion is rate hike because the market is prying for a rate hike in the June meeting.
“Among financials, it’s not just the banks, but one can also look at insurance companies, which have underperformed quite significantly over the last 6-12 months.
Another aspect, importantly, is that LIC is basically having a larger share of the equity portfolio in its books, which is almost close to four percent of the total market,” he says.
In such kind of a situation, I think when the market index and equity valuations are likely to go up in the next 10 years, the new business premium probably would have much larger say in the books of the company going forward.
Mixo Das, APAC Equity Strategist at JPMorgan, believes the US central bank is trying to normalise its policy as soon as it can.
Two things to keep in mind here are that the March inflation print, by our numbers, should probably be the peak in year-on-year terms and that could be a significant turning point in terms of the tone of the Fed,” he adds.
The 30-scrip index moved within a range of more than 250 points, between 56,916.5 and 57,184.2, in early deals.