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Reserve Bank of India (RBI) Governor Shaktikanta Das’s comment that expectations of a rate hike in the upcoming policy meetings are a “no-brainer” has hardly been a surprise for investors. The benchmark Nifty 50 index was little changed on Monday and in Tuesday afternoon trade.
The RBI, like several other central banks, has waited too long to tame inflation and is now rushing to withdraw the COVID stimulus. The minutes of the unscheduled meeting of the Monetary Policy Committee (MPC) meeting held in May showed unanimity that rate hikes are needed to tame inflation. This has prepared market participants for more rate hikes, reducing the so-called shock factor, even though the inflation trajectory remains a key variable.
"If further aggressive (stronger) rate hikes do not materialise, then it will be a positive surprise for equities, while meeting expectations of aggressive rate hikes will keep equity valuations subdued although the shock and awe situation will recede,” ICICI Securities said in a note.
The government too has woken up to the inflation threat and has initiated duty cuts to tame prices. It is reportedly considering more measures to contain prices of essential goods. Still, duty changes will help only to a certain extent.
The current global inflation is stoked by a combination of events such as the Ukraine war, continued disruptions in the global supply chains and the unprecedented COVID stimulus. These headwinds may not ease immediately. “Higher-for-longer inflation will keep interest rates elevated and act as a headwind to market multiples,” warns Kotak Institutional Equities Research.
Talking about expectations, investors have sent shares of Divi’s Laboratories lower after the March quarter results. The headline numbers are strong. However, analysts fear Divi’s may not be able to maintain performance as COVID drug-related sales which have powered the company’s earnings in FY22 may abate in the current fiscal FY23.
In primary markets, the initial public offering (IPO) of speciality chemicals manufacturer Aether Industries has opened for subscription. The company enjoys a sizeable market share in its key products, giving it a competitive advantage. However, valuations leave a limited margin of safety, warns Anubhav Sahu. Read his analysis here.
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