One will be better off investing in companies experiencing robust demand, where export revenues support prices, and are not directly linked to interest rate fluctuations
The Reserve Bank of India’s Monetary Policy Committee (MPC) as expected raised the key policy (repo) rate by 25 basis point to 6.25 percent for the first time in four-and-a-half years and a first under the Narendra Modi-led National Democratic Alliance. The last time RBI had raised the repo rate was in January 2014 by 25 bps to 8 percent. Since then, it has either cut rates or maintained the status quo.
RBI Governor Urjit Patel changed the rate a little higher, as at this juncture that was the best thing to do. India is in a situation where anything sharp can hurt the economy. If we raise the Interest rates too fast and too sharply, and try tightening the money supply, it can hurt corporate earnings, which are just on the cusp of expanding," Motilal Oswal, Chairman and MD, Motilal Oswal Financial Services, said.
At current levels, he finds markets looking a tad expensive on account of expectations of earning momentum kicking in. Oswal finds the midcap correction overdone and it would be a good idea to commit some capital into well-managed midcap mutual funds ‘as the recovery in earnings will bring quick buoyancy’.
In the short term, he sees the Nifty headed towards the 11,000 mark. Based on that premise, he advises investors to look at companies experiencing robust demand, where export revenues support prices, and are not directly linked to interest rate fluctuations. Some such sectors are automobiles, consumer durables, IT stocks, as well as the dairy industry.
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