Equity, debt markets' strategy post RBI's rate hike decision

With a 50-basis point rate hike last Friday, India has frontloaded about 180-bps rate hike in 2022.

With the RBI maintaining its retail inflation forecast for fiscal year 2022-23 at 6.7%, despite three consecutive rate hikes, analysts say investors should brace for continued rise in rates. And it would have a contrasting impact on debt and equity markets.

“Since bond markets had hoped that the RBI may temper future rate hikes, they would now focus on incremental G-sec supply. Thus, staggered investment approach in fixed income stays,” Lakshmi Iyer, Chief Investment Officer (Debt) & Head-Products, Kotak Mahindra Asset Management Company. 

Equities, on the other hand, may stay buoyant as rate hikes have been adequately priced in.

B Gopkumar, MD and CEO, Axis Securities says, rate hikes already discounted, no negative surprise from the RBI cheered investors. Global markets have recovered, short-covering. Increased client participation lifting indices, healthy Q1, falling crude oil prices, rupee pullback, positive FPI flows support positive outlook. 

From investment perspective, analysts are putting their money behind banks among the interest rate sensitive stocks. 

Mitul Shah, Head of Research, Reliance Securities, says real estate may see negative impact of rate hikes, demand off-take may slowdown, remain bullish on banks, expect margin, profitability in BFSI space to improve.

Technically, rate-sensitive stocks like SBI, DLF, Bajaj Auto and Manappuram Finance are eyeing 10-14% upside.

This week, the markets will react to the last leg of corporate earnings, and track retail inflation data for July. Markets shall remain closed on Tuesday on account of Muharram holiday.