The recent aggressive interest rate hike of 75 basis points (bp) by the US Federal Reserve could push the Reserve Bank of India (RBI) to opt for further rate hikes over the next two or three quarters, believe experts, adding that it would have a direct impact on GDP (gross domestic product) growth and market movement.
The U.S. Fed’s interest rate hike is the third since March and comes after inflation in the country unexpectedly spiked last month. More importantly, the US central bank signaled similarly large increases later this year, which could potentially hurt investors’ already fragile outlook in global markets.
Will RBI go for aggressive rate hikes?
The central bank, according to economists and reports, could opt for an additional interest rate hike of up to 125 basis points this fiscal year, bringing the overall increase to more than 200 basis points.
This rise could not only weigh on the economy’s overall demand as well as GDP growth, but will also lead to a market correction due to the outflow of funds from foreign portfolio investors (FPIs) and an adjustment to lower earnings forecasts for listed companies due to higher cost of funds as well as cost of inputs.
The Sensex had plunged 2% to close at a 12-month low of 51,495 the day after the US Fed announced its 75 basis point interest rate hike. According to provisional data released by exchanges, REITs unloaded equity holdings worth Rs 3,257 crore on Thursday June 16 and sold holdings worth Rs 31,500 crore in June. This put pressure on domestic stocks.
What should market investors do?
A quick resolution to the ongoing war between Russia and Ukraine could revive market sentiment, as a significant portion of inflation concerns are driven by the crisis. Market participants feel that a protracted war could only weaken them further, as it could lead to higher food and oil prices.
With interest rates steadily rising and uncertainty over where yields might settle, investors believe domestic equity markets at this time should only be viewed with a horizon of investment of at least three years.
Many of them believe that India is very well positioned for higher growth over the next three to five years and that companies in all sectors are already in the midst of new capital investment, which should accelerate. In the coming months.
Even though the stock market slump has shaken investor sentiment for now, people should invest in stocks with the future in mind.
According to market analysts, investors should opt for systematic investment plans as it will help them capitalize on a further decline in the market. Investors can also put money into stocks that have traditionally performed well when inflation is high.