Quote : We had called the February policy as ‘needlessly dovish’ – wherein the RBI forecasted CPI for FY 23 @ 4.5% much lower than expected, allowing them to continue its accommodation and maintain status quo. In its April policy, given its revised FY 23 inflation forecast of 5.7%, it has turned what the market would call ‘unexpectedly hawkish. In its own inimitable way under Governor Das, the RBI changed its stance away from accommodative without actually calling it so, made an effective rate hike of 40 bps without actually hiking any rates, and has introduced a tool (Special Deposit Facility-SDF) to sterilise unlimited surplus liquidity but choosing it to do over a multi-year horizon The 5.7% average CPI for FY 23, with the first two quarters at above 6% would mean that the RBI can no longer hold the Repo rate at 4%, We would expect, a change in stance and a 25 bps hike in the June policy. If the current conditions of 100$/brl oil and elevated food prices continue, we would expect the Repo rate to be around 5% in FY 23. The worry for the equity markets would be the sharp downgrade to GDP forecast, especially the below consensus numbers for Q3 and Q4 Fy 22. Bond Markets have reacted to the unexpected hawkishness and the shift in priority to inflation overgrowth. Yields have increased by 10-15 bps across the curve. Oil prices, the US bond yields, and the inflation focus from the RBI will be the key driver for bond markets. Given the large government bond supply and the near absence of OMOs, we expect bond yields across the curve to increase over the next six months. This should also see an increase in deposit rates as RBI removes liquidity from the system. We would also gradual rise in lending rates Rising bond yields is negative for long-duration bond funds. At this juncture, investors will be better off avoiding long-term bond funds. With the removal of excess liquidity and rising short-term interest rates, return on categories like liquid funds should improve going forward. Disclaimer, Statutory Details & Risk Factors: The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

 

Quote :

We had called the February policy as ‘needlessly dovish’ – wherein the RBI forecasted CPI for FY 23 @ 4.5% much lower than expected, allowing them to continue its accommodation and maintain status quo. In its April policy, given its revised FY 23 inflation forecast of 5.7%, it has turned what the market would call ‘unexpectedly hawkish.

In its own inimitable way under Governor Das, the RBI changed its stance away from accommodative without actually calling it so, made an effective rate hike of 40 bps without actually hiking any rates, and has introduced a tool (Special Deposit Facility-SDF) to sterilise unlimited surplus liquidity but choosing it to do over a multi-year horizon

The 5.7% average CPI for FY 23, with the first two quarters at above 6% would mean that the RBI can no longer hold the Repo rate at 4%, We would expect, a change in stance and a 25 bps hike in the June policy. If the current conditions of 100$/brl oil and elevated food prices continue, we would expect the Repo rate to be around 5% in FY 23.

The worry for the equity markets would be the sharp downgrade to GDP forecast, especially the below consensus numbers for Q3 and Q4 Fy 22.

Bond Markets have reacted to the unexpected hawkishness and the shift in priority to inflation overgrowth. Yields have increased by 10-15 bps across the curve. Oil prices, the US bond yields, and the inflation focus from the RBI will be the key driver for bond markets. Given the large government bond supply and the near absence of OMOs, we expect bond yields across the curve to increase over the next six months.

This should also see an increase in deposit rates as RBI removes liquidity from the system. We would also gradual rise in lending rates

Rising bond yields is negative for long-duration bond funds. At this juncture, investors will be better off avoiding long-term bond funds.

With the removal of excess liquidity and rising short-term interest rates, return on categories like liquid funds should improve going forward.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.