The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is likely to maintain the status quo on its policy rate for the fourth consecutive time on October 5.
While this might initially fuel market enthusiasm, investors should brace for potential volatility, balancing their strategies between growth prospects and inflationary risks, an economist at Prabhudas Lilladher told Moneycontrol. “A discerning focus on resilient sectors will be key in navigating this complex landscape,” the economist added.
MPC outcome’s message to markets
If the RBI decides to keep the repo rate unchanged at 6.5 percent and maintains a “withdrawal of accommodation” stance even against the backdrop of growing domestic and external economic challenges, it will send a dual message to the equity markets.
“On the one hand, it showcases the central bank's confidence in the current economic trajectory, on the other, this pause, coupled with the hawkish undertones from the MPC's recent minutes, underscores the RBI's readiness to counteract any inflationary spikes,” the economist said.
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The three-day meeting of the RBI MPC started on October 4 and its outcome is due on October 6. With the prevailing economic headwinds, CareEdge expects the RBI to retain its growth projections at 6.5 percent for FY24 as the central bank will likely adopt a wait-and-watch approach. "Seeking better visibility on festive demand trends and estimates of kharif production before making any adjustments," CareEdge analysts said in a note.
What does a pause in rate hikes mean for equity markets?
Market participants appear to be cautious ahead of the MPC meeting outcome. Share market analysts believe that no major movement will likely be seen in domestic equities if the RBI maintains the status quo as the market has likely priced in another pause. However, rate-sensitive stocks may see positive movement after the MPC outcome.
Can a stable rate environment boost spending this festive season?
In the current stable rate environment, consumers are likely to be emboldened to spend more this festive season, given the predictability in borrowing costs. This could lead to a surge in demand, particularly benefiting interest rate-sensitive sectors like real estate and auto.
“While this stability underscores the central bank's confidence in the economy, the underlying hawkish stance hints at the RBI's vigilance against inflation. Thus, while the near-term outlook is optimistic, businesses and investors should stay alert to broader macroeconomic cues and potential policy pivots," said the Prabhudas Lilladher economist.
Also Read: Bulls break two-day losing run; Sensex up 405 pts, Nifty nears 19,550
Weakness in market to persist in near term
Meanwhile, Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, expects weakness to persist in the market in the coming weeks till the headwinds recede. "The Q2 earnings season will start next week and is expected to maintain the growth momentum of previous quarters. Even the pre-quarterly updates released so far indicate healthy traction. Market direction going ahead will depend upon the combination of global/local macros and earnings delivery along with management outlook," he said.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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