Delhi, Mumbai : Reserve Bank of India upheld its inflation forecast and signaled confidence in the country’s economic trajectory, perceived by analysts as less hawkish, Indian stocks rose, breaking a seven-day losing streak.
With uncertainty around most major events now, the latest 50 basis points increase is likely to support the rupee. Nifty gained 1.64% to close 17,000 points again at 17,094.35. The Sensex was also trading at 57,426.92 with a gain of 1.8 per cent, crossing the 57,000 mark.
Vinod Nair, Head of Research, Geojit Financial Services, said, “RBI’s confidence in the growth momentum of the economy as well as an in-line rate hike helped the domestic market reverse the seven-day losing streak.” In addition, the decision to retain the inflation forecast at 6.7 per cent, with minor cuts, but a healthy GDP of 7%, indicates the resilience of the Indian economy, Nair said.
The fourth hike by RBI in this fiscal takes the repo rate to the highest level since August 2019. Although the central bank’s remarks warned about the current risks to the domestic economy, the Monetary Policy Committee refrained from sounding too loud, experts said.
Aishwarya Dadhich, fund manager, Ambit Asset Management, said, “This remainder of CY22 is likely to see another 25 bps to 35 bps and will depend on the Fed’s outcome and evolving global situation.”
The 10-year bond yields reacted positively amid “a relief rally” and no negative surprises in policy, analysts said. Sentiments remain encouraging amid a modest reduction in government market borrowings, a strong growth in tax collections and expectations of inclusion in global bond indices. Gurvinder Singh Vasan, Senior Fund Manager and Credit Analyst-Fixed Income, JM Financial Asset Management Ltd. said, “Keeping in mind the H2FY23 calendar announcement, we saw a slight uptick in the yield curve with a decline in the five-year G-Sec yield and 10-year government securities remain stable at 7.35%. Until there is clarity on bond inclusion, we expect bonds to take a cue from global events.”
DK Joshi, Chief Economist, Crisil said, “We are in the midst of a storm right now. I expect further weakness in the rupee, but it is difficult to say where it will find support given that there are too many moving parts. On bond yields, we expect tightening to 7.5% by the end of FY13 from current levels of 7.39-7.4%. Rupee overshooting should also correct by fiscal end, with rupee balance below $80 per dollar.
The rupee closed at 81.35 against the dollar, up 0.6% from its previous close of 81.35. The 10-year bonds, which saw a 3-4 bps fall in post-policy yield, closed 5 bps higher at 7.43%.
Manvi Prabhu, head of fixed income at Anand Rathi, expects 10-year G-Sec to rise to 7.30-7.50% by December-end if oil remains stable or falls below current levels of $87-88 a barrel . “Only if something drastic happens with respect to Ukraine or the global macros, will the yield test the outer limit of 7.6% by the end of December,” she said.
However, Brent crude has risen slightly in the last few sessions. However, it is still trading below $90.
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