Indian economic growth is likely to fall short of its earlier projection of 5 per cent this fiscal year. as per RBI.
The RBI’s move to hike 25 basis points (bps) on repo rate to 8 per cent, has been seen as a surprise move by the overall market, considering the industry is already under immense pressure due to high cost of borrowings with low capital availability in this volatile environment. RBI, however, has kept the cash reserve ratio (CRR) unchanged at 4 per cent.
The sentiments of all the interest rate sensitive sectors and its stocks, as well as the companies which are reeling under massive debt will be again less positive now. Banking sector which were anticipating any rate cuts to help boost industrial growth after the hit from high inflation in the last few months may not see the benefits of lower interest rate.
From a stock market perspective, as per the RBI, the Indian economic growth is likely to fall short of its earlier projection of 5 per cent this fiscal year. The consequences of the RBI’s move will be reflected in the companies forthcoming Q4 FY14 results which does not hold any good for its stock prices in the market.
However, many experts believe that further policy tightening is not anticipated, as RBI is likely to ease policy stance, which augurs well for the markets. Says, Saday Sinha, Banking Analyst, Kotak securities: Although the hopefuls of reduction in rates from now on may have to wait a little longer than earlier expected. Rates are likely to fall over the course of the next fiscal, probably after the new government’s policy response towards restarting growth engine and combating inflation”.