Stock market may see further corrections, volatility after RBI move

Money may move out of rate-sensitive stocks into the less-affected sectors

The RBI has decided to tighten money supply and raise policy rates in an out-of-cycle meeting of the Monetary Policy Committee (MPC). The RBI has also preemptively responded to the Fed’s increasingly hawkish stance, with the Fed expected to hike US policy rates this week.

Note that the Wholesale Price Inflation or WPI print (not a direct RBI trigger) is double the Consumer Price Inflation (CPI), which is well above the RBI’s upper limit of 6 per cent. The higher WPI implies corporates cannot pass on input-cost increases. In turn, this means profit margins are under pressure.

The impact of