Today market spent most of the session in the green but
ended with minor losses on sell off. Sensex gave up all intraday gains to close
37 points or 0.07% lower at 54,288 while nifty fell 51 points or 0.32% to
settle at 16,214 & banknifty closed 0.08% down. Maruti Suzuki India was the
top performer in Sensex, up 4%, followed by M&M, HUL and Larsen &
Toubro. Tata Steel slipped 12.24% on Monday, while Ultratech Cement slipped 3%
and ITC slipped 2.2%.
Global markets were and are volatile in the month of May 22. The Indian markets are also on a similar path, however, the drawdown percentage in the Indian markets is not as high as in the global counterparts. Nifty has corrected -6.3% year-to-date with continued volatility in the month of May. Some of the main reasons for this continued volatility are concerns over the Russia-Ukraine conflict, decades of high inflation, supply chain issues, rising input costs leading to a squeeze on margins, and demand compression. We expect India's medium-term inflation to range between 4.5% and 5.5%. Historically, the Reserve Bank of India has aimed to keep the real repo rate at 100-150 basis points. Given this, we expect the cycle repo rate to peak around 6-6.5%, accordingly we expect the RBI to hike the repo rate another 200 basis points over the next 24 months. The interest rate hike also increases the risk-free interest rate and thus the discount rate for future earnings. These in turn reduce the valuation of companies. Taken together, the short-term effects of a rate hike can hurt corporate earnings and the stock market. Interest rate changes should not affect the long-term prospects of an investor with a long time horizon and an appropriate mix of equity and debt. Being consistent in your asset allocation strategy and diversification can help protect your entire investment portfolio against the effects of interest rate changes over the long term.
