With a rate hike of 50 basis points last Friday, India anticipated a rate hike of around 180 basis points in 2022.
As the RBI maintains its retail price inflation forecast for FY 2022-23 at 6.7%, despite three consecutive rate hikes, analysts say investors should prepare for a continued rate hike. And that would have a contrasting impact on the debt and equity markets.
“Since bond markets had hoped that the RBI might temper future rate hikes, they would now focus on additional G-sec supply. Thus, the laddered investment approach in fixed income remains,” Lakshmi Iyer, Chief Investment Officer (Debt) and Head of Products, Kotak Mahindra Asset Management Company.
Equities, on the other hand, could remain buoyant as rate hikes have been properly priced in.
B Gopkumar, MD and CEO, Axis Securities says, Rate hikes already discounted, no negative surprises from RBI cheered investors. Global markets rallied, covering short positions. Increased customer participation boosts indices, healthy first quarter, falling crude oil prices, falling rupiah, positive REIT flows support the positive outlook.
From an investment perspective, analysts are putting their money behind the banks among interest rate sensitive stocks.
Mitul Shah, head of research at Reliance Securities, said real estate could see the negative impact of rate hikes, demand could slow, remain bullish on banks, expect margin and profitability in the BFSI space are improving.
Technically, rate-sensitive stocks like SBI, DLF, Bajaj Auto and Manappuram Finance are eyeing a 10-14% upside.
This week, markets will react to the latest leg of corporate earnings and will follow retail price inflation data for July. Markets will remain closed on Tuesdays due to the Muharram holiday.