Stocks, Bonds: Where to invest after RBI's first repo rate cut in 5 yrs?

RBI Monetary Policy: RBI MPC announced a repo rate cut to 6.25 per cent from 6.5 per cent amid slow economic growth and sticky inflation. Here is how investors should invest after RBI policy

RBI monetary policy: Equity markets turned volatile in trade on Friday as the Reserve Bank of India (RBI) cut the repo rate by 25 basis points today. The RBI Monetary Policy Committee (MPC) brought down the repo rate to 6.25 per cent from 6.5 per cent, while maintaining its 'neutral' stance.

 

"The RBI MPC has decided unanimously to continue with its 'neutral' stance and remain unambiguously focused on a durable alignment of inflation with the target while supporting growth," RBI Governor Sanjay Malhotra said in his statement.

 

On the bourses, the BSE Sensex index fell over 300 points intraday to hit a low of 77,730 levels intraday, and the Nifty50 index, on the other hand, fell below the 23,500-mark. Both the indices, however, later recouped losses to trade flat around 12:35 PM.

 

 

In the debt market, the yields on 10-year government bonds rose over 2 per cent to 6.8 per cent.

 

Going ahead, analysts remain divided on the rate cut trajectory and expect gradual rate cuts in the coming months. The policy, they said, indicated a shift toward a more dynamic balancing of inflation with growth objectives.

 

Where to invest in equity stock market after RBI policy?

Vinit Bolinjkar, Head of Research, Ventura Securities:

 

Rate cut of 0.25 per cent to 6.25 per cent by the RBI has been undertaken after 5 years. While the rate cut was fully discounted by the market, together, with the recent liquidity boosting measures, it will usher in fresh investments and kick start the consumption cycle given the expectation of lower inflation from the strong Rabi and Kharif crop. Banking, auto, FMCG, consumer durables, manufacturing, and NBFCs all expected to do well.

 

Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS:

 

The credit growth momentum for banks has evidently slowed down either owing to a cautious approach towards lending amidst asset quality concerns in the unsecured segment or softening demand. However, we see positive levers for supporting credit growth revival from the recent budget announcements. The rate cut can be viewed as a positive for lenders having a higher share of fixed rate portfolio, especially credit card issuers, vehicle financiers and gold financiers. On the other hand, banks with a higher share of floating-rate loans would continue to face near-term headwinds on margins.

 

We would remain watchful of asset quality trends for banks, especially those with meaningful exposure to unsecured lending, wherein recovery is still a couple of quarters away. Currently, we prefer Bajaj Finance, Cholamandalam Inv & Finance and Shriram Finance as they would be key beneficiaries in the rate cut cycle.

 

Where should debt (bond) market investors invest?

 

 Lakshmi Iyer, CEO-Investment & Strategy, Kotak Alternate Asset Managers:

 

No change in stance implies a more shallow rate easing cycle ahead, while keeping all options open given global vulnerabilities. We expect markets to focus more on global developments, specifically currency moves. Bond yields are likely to remain range bound with every uptick in yield offering a buying opportunity.

 

Mahendra Kumar Jajoo, CIO Fixed Income, Mirae Asset Investment Managers (India):

 

There is a strong guidance for providing adequate liquidity including injecting durable liquidity which typically indicates more open market purchase operations of dated securities. Thus, policy is a positive response to meaningful fiscal consolidation and guide path in the union budget and seems to set the tone for a deeper easing cycle and possibly more rate cuts to follow. Fixed income markets should witness further strengthening of ongoing momentum and bond yields are expected to ease further in coming months.

 

Shriram Ramanathan, CIO, Fixed Income, HSBC Mutual Fund:

 

The new RBI Governor Sanjay Malhotra played out a balancing act, by easing rates, while clearly being mindful of the global market volatility and its potential impact on our currency, and hence maintaining a cautious tone. We expect the RBI MPC to deliver another 25bps cut at the April policy, while continuing to announce liquidity related measures as and when required on a "proactive" basis. While the initial reaction of bond markets has been one of disappointment, with yields inching up a few basis points, we believe interest rates will continue to soften over the next few months and retain our positive duration bias and outlook.