Why Sensex is up 1,000 points today despite rate hike by RBI
Premium- The RBI slightly cut its GDP forecast for the year while maintaining inflation outlook.
Indian stock markets made a sharp recovery after Reserve Bank of India announced its monetary policy decision with Sensex up over 1,000 points in afternoon trade. Analysts said that markets are drawing comfort from expectations that the RBI may be nearing the end of the rate hike cycle in India. The RBI raised its benchmark repo rate by 50 basis points today, the fourth straight increase, as policymakers extended their battle to tame stubbornly high inflation and analysts said further tightening is on the cards. The RBI has now raised rates by a total 190 basis points since its first unscheduled mid-meeting hike in May.
Today, the RBI slightly cut its GDP forecast for the year while maintaining inflation outlook.
“RBI hiked the policy rate by 50 bps along expected lines and also maintained its stance as “withdrawal of accommodation" citing that the real policy rate (adjusted for inflation) is still trailing pre-pandemic levels. GDP growth estimate for FY23 has been revised down marginally from 7.2% to 7%, while inflation forecasts have broadly been maintained. This indicates that the central bank is somewhat comfortable with macro-economic situation in India relative to other peer emerging economies," said Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance.
“Therefore, we feel that the RBI may be nearing the end of the rate hike cycle in India and future rate hikes will have more to do with supporting the Indian currency and also to some extent the inflation trajectory. Both equity and bond markets have taken this in a positive stride and have rallied post the policy announcement."
Banking stocks have taken the lead in today's advance with Bank Nifty index up 3%.
"The RBI commentary has been a finely balanced one – while global risks are discussed extensively, the RBI appears confident on the growth momentum in the Indian economy in the coming months. The modest downward revision in the FY23 GDP growth target to 7%, from 7.2% earlier, and leaving the inflation forecasts largely unchanged are on expected lines. While today’s RBI communication suggests future policy to remain data dependent and another round of rate hike cannot be ruled out, overall, the MPC refrained from springing any major surprise leading to broadly favourable reaction from most segments of financial markets," said Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank.
The RBI is quite optimistic about the Indian economy and is fully in control in terms of inflation, currency, and forex reserves and the central bank is also very careful to not destabilize the financial markets, said Vikas Gupta, CEO and Chief Investment Strategist, OmniScience Capital.
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