The Reserve Bank of India’s Monetary Policy Committee (MPC) will announce the outcome of its bi-monthly meeting tomorrow and experts are certain another rate hike is imminent. The only thing to watch out for now is the magnitude of the hike. Dalal Street seems nervous with BSE Sensex and NSE Nifty 50 already down more than 1% this week, but experts say investors may bet on rate-sensitive stocks for potential gains ahead of the RBI policy decision. Analysts believe rate-sensitive sectors such as financials are ones to watch out for just ahead of the MPC’s decision, where inflation is now taking the centrestage.
Rate hike imminent
Overall, RBI is expected to hike rates by 150 basis points at least, over the next 12 months, said Dhananjay Sinha, MD & Head – Strategist, JM Financial Institutional Securities. He further said that a 40-50 basis points hike could come tomorrow. “Assuming that core inflation softens to 6% in the next 12 months the short term rates will have to be at 7% from the current level of ~4% (overnight call money rate). This would ideally call for about 200-250 basis points addition repo rate hike,” he said.
If MPC members vote for a hike in repo rate, it will be the second rate hike since 2020. Earlier last month, MPC members met in an off-cycle meeting and decided to hike rates by 40 basis points and started pulling excess liquidity from the system by raising CRR by 50 basis points.
What to buy and what to avoid?
Analysts have also voiced their support for the services sector as interest rates rise. “For the services sector, inputs are human resources, not commodities. So, the impact of inflation will be far less,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Banks are mostly favoured amid a rising interest rate scenario as margins for lenders increase in such an environment. “Ahead of the rate hike, we would like banking & financial stocks like HDFC, SBI, or large-cap stocks such as ITC and Tata Motors,” said Sonam Srivastava, of Wright Research.
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