The Reserve Bank of India is expected to raise interest rates at a faster rate than expected earlier, said Sanjeev Prasad, managing director and co-head at Kotak Institutional Equities.
Prasad said the central bank may do so to react to the aggressive rate hikes by the US Federal Reserve and to counter strength in the dollar.
Last week, the Fed had hiked the Federal funds rate by 75 basis points (bps) to 3-3.25 percent to curb soaring inflation.
"I guess every other central bank could be posed to, in a way, manage the external situation/currency also," he said in an interview to CNBC TV18. "So just not a case of inflation. It's just also the external situation."
According to reports, the RBI is set to raise interest rate for the fourth time in a row at its Monetary Policy Committee outcome on Friday to tame stubborn inflation. The central bank is seen going for a 50-bps increase to take interest rates to a three-year high of 5.9 percent.
Also read: RBI set for fourth straight rate hike to quell inflation, say experts
Prasad also suggested that investors may consider 'sitting on cash' at this juncture instead of buying stocks to expand their portfolios.
"Sit on cash. It's a tough one... Because the defensives, whether it is consumer staples or pharmaceuticals, none of them are really cheap, many of them have in terms of multiples, seen an expansion over the last three years," he said.
Talking about domestic pharma companies, Prasad believes that pharma stocks are performing well and valuations have also been reasonable.
"I will say domestic pharma businesses are doing actually quite well...it is probably starting to look more interesting given the de-rating which one has seen," he said.
From a valuation ad growth standpoint, Prasad also mentioned that the banking and IT space have also been performing well.