The RBI surprised the markets; experts feel short term debt
fund is the best option and those with SIP should continue.
RBI in its quarterly monetary policy
review today raised the key interest rates by a steep 50 basis points (bps),
higher than the market expectation, to tame the rising inflation. After this
move the repo rate has gone up to 8% from the earlier 7.5% and the reverse repo
rate to 7% from 6.5%. RBI has raised for the eleventh time since March 2010.
The marginal standing facility has
also gone up to 9 percent from 8.5 per cent. However, the central bank, has kept
the cash reserve ratio rate unchanged at 6%. In the first quarter policy review
statement, the RBI said “Although the impact of past monetary policy actions is
still getting transmitted, considering the overall growth-inflation scenario,
we are determined that it is necessary to persevere with the anti-inflationary
stance”.
Moreover the central bank has revised its
March 2012 inflation projection to 7 per cent from 6 per cent earlier and has
also retained the growth projections at 8 per cent for the current fiscal as
there is no evidence, as yet, of a sharp or broad-based slowdown though there are
signs that growth is beginning to moderate, particularly in respect of some
interest rate sensitive sectors.
Ramanathan K, CIO, ING Investment
Management said that the most important point is the fact that there is no
clear indication whether the RBI is at the stage of pressing the pause button.
Any further rate hike beyond 25-50 bps is going to impact growth significantly
below the trend level.
He also said that while the rates are around the 8 per cent levels the bank ‘base rates’ are in the range of 9.5 – 10.5 per cent and the average lending rates (for working capital and term loans) to lower than AAA corporates are between 10.5 - 14 per cent. Hence at these high interest rate levels investment demand is surely expected to get impacted as incremental capex plans of corporates would be put on hold.
As per Gopal Agarwal, CIO, Mirae Asset
Global Investments, in the short run the 10-year bond trend will be range-bound
with the upper cap at 8.5 per cent depending upon the borrowing in the second
half of the year. He also said that if the commodity prices and inflation
remain stagnant then there can be upward pressure on the yields. He further
added that considering the present scenario, the best thing for an investor is
to invest in short term debt funds.
The rate hike weighed heavily on the market sentiments pulling it down considerably. The Sensex and Nifty ended the day at 18,518 and 5,575, down 353 points and 105 points respectively. As can be expected, the worst hit were the interest sensitive sectors such as banks, automobiles and real estate. Experts feel that while the markets will continue to remain weak, your investors should continue investing through SIP in well performing equity schemes.
