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Expect two to three rate hikes from central bank next fiscal, says Dhiraj Agarwal of Ambit Capital

The equity strategist expects the market to remain volatile and range-bound throughout the year.

New Delhi / March 30, 2022 / 10:43 AM IST

The Reserve Bank of India could raise interest rates by two to three times in 2022-23, Dhiraj Agarwal, co-head of institutional equities at Ambit Capital, told CNBC-TV18 in an interview on March 30.

“At some point, RBI will also come to the conclusion that there is no alternative but to tone down inflation expectations,” Agarwal said.

The central bank has so far remained undeterred on the inflation front even as Consumer Price Index (CPI) has breached the upper threshold of six percent. Worryingly, inflation in the pipeline measured by the Wholesale Price Index has set alarm bells ringing as WPI stood at a decade high in February.

Agarwal said that hikes in interest rates at home and abroad going ahead are worrisome given that they come against the backdrop of decent economic growth and cost-push inflation and not strong economic growth and demand-pull inflation as seen in 2005-07.

“Current rate hikes are more worrisome for markets as it is a bit stagflationary in nature,” he said. The equity strategist added that inflation is more concerning in the Indian context given the wide spread between WPI and CPI which translates into margin pressure for corporates and likely earnings downgrade.

Agarwal is not counting any major positive earnings surprises from the upcoming March quarter earnings but expects some pockets like contact-intensive sectors to post strong earnings growth. The March quarter earnings season will kick off with IT sector bellwether Infosys reporting on April 13.

The equity strategist expects the market to remain volatile and range-bound throughout the year with a downward bias. “It will be a sort of gently down-trending market rather than a collapse,” he said.

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first published: Mar 30, 2022 10:43 am