The monetary policy committee s 35 basis points rate hike, which was less than the previous rate hikes but in line with Street expectations, could not cheer stock investors. The BSE Sensex fell over 350 points after the rate hike. The RBI trimmed its GDP estimates for FY 23 to 6.8 per cent, weighing on the market sentiment.
The inflation fight is not over today, according to Garima Kapoor, Economist at Elara Capital.
With inflation expected to remain above 6 per cent until February 2023 and amid elevated and sticky core inflation prints, we anticipate MPC to hike policy rate by another 25 -- 35 bps in February 2023, she said.
Five out of six MPC members voted in favor of 35 basis points, according to Naveen Kulkarni Chief Investment Officer at Axis Securities PMS. Kulkarni said that the RBI has reduced India's growth forecast for FY 23 to 6.8 per cent from 7 per cent and that it has re-iterated its intention of withdrawing accommodative policies with four members out of six voting in favor of it.
The RBI governor expressed confidence in India's growth trajectory but said that it is important to be vigilant to the secondary effects of high global commodities, especially energy and food prices. We believe that the MPC decisions are on expected lines and will not have a major impact on Indian markets, based on decisions announced today, Kulkarni said.
Anil Rego, a fund manager at Right Horizons, said the market's momentum depends on how much the rate is hiked relative to expectations.
The rates hike was hiked by RBI by 35 bps, in line with market expectations, with surprises usually followed by volatility in the market.
The discount rate for cash flow is higher because of higher interest rates, which means terminal values are lower, said Rego.
He said that the financial sector has historically been the most sensitive to changes in interest rates.
The banking sector passes on rate hikes through the floating rate loans, while delaying rate hikes for deposits, benefitting from spreads and expanding margins during a rising interest rate scenario. Rego said that we don't see any material impact on the stock market, but we will be watching closely on the consumption side, because we don't see any material impact on the stock market.