Nifty hits 21k as RBI keeps repo rate unchanged: Where should you invest?

The benchmark Nifty hit a new peak, breaching the 21,000 level for the first time ever today, December 8. The Nifty index hit a new high of 21,006.10, rising as much as 105 points in intra-day deals. It ended at 20,901.15 in the previous session (December 7). Meanwhile, the Sensex also hit a new high of 69,888.33 in intraday deals today, gaining almost 367 points. 

Overall, the Monetary Policy Committee's (MPC) decision appears favorable for the equity markets, providing an additional boost to the already soaring shares.

The Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5 percent as expected and raised the FY24 GDP forecast to 7 percent from 6.5 percent earlier. However, it retained the FY24 CPI inflation forecast at 5.4 percent. The MPC of the central bank also retained its stance of remaining focused on “withdrawal of accommodation."

This is the fifth session in the month of December when the Nifty has hit a record high.

Apart from today's policy decision, continued foreign investor inflows, strong macro data, and fall in crude oil prices as well as supporting global market trends have also lifted the index to its peak.

The index has already surged over 4 percent in December so far, giving negative returns in just 1 session of the current month so far. This comes after a 5.5 percent rise in November. Overall, in 2023 YTD, the index has gained almost 15 percent; meanwhile, in the last 1 year, it has advanced almost 13 percent.

"The upward revision of the real GDP growth projection for 2023-24 is anticipated to have a positive impact on the market. In the short term, the Nifty might see volatility; only a clear breakout above 21,000 could drive the index towards the range of 21,550-21,700. A critical support level is situated at 20,800," said Rupak De, Senior Technical analyst at LKP Securities.

Meanwhile, giving a fundamental view, Santosh Meena, Head of Research, Swastika Investmart, says the Indian market is likely to continue its bullish momentum, with the Nifty reaching a significant milestone of 21,000.

"We believe this momentum will persist, potentially experiencing some consolidation along the way. Banking and financial stocks are particularly well-positioned to outperform, given their current valuations and fundamental strengths. Nifty can head towards 21,275/21,500 and Bank Nifty can test 48,800/50,000 in the medium term," Meena predicted.

Going ahead experts believe that overall, the stock market is likely to experience a steady momentum, buoyed by a stable policy environment and strong economic indicators. The markets in the near term will now be driven by the upcoming earnings season and the 2024 elections.

Read here: Stocks to buy today: Experts recommend these 5 shares after RBI MPC meeting

Rate cut in the near term?

However, it is important to note that the RBI has in no way indicated a relaxation in repo rates.

"The economy is on strong footing despite the sharp rise in rates and the RBI is seeing no need to reverse direction. Even though inflation is expected to inch up in the immediate term due to higher food prices, the RBI will be complacent to such data and will be focusing on the medium-term outlook. Medium term, our growth is expected to be 7 percent for FY24 and FY25 with inflation under the 6 percent bar. Overall, this is a very encouraging statement. When other economies are considering a reversal in policy rates because their economies are slowing down, India, as an outlier, is in the most comfortable place possible," said Sreeram Ramdas, Vice President, Green Portfolio PMS.

Meanwhile, Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance, also noted that the RBI's focus on maintaining stability and anchoring inflation expectations will be crucial in guiding the Indian economy through the challenging global environment. Reddy also believes that the RBI's future actions will depend on evolving data, and continues to expect a long pause.

Vijay Kuppa, CEO of InCred Money, also said that the RBI is extremely clear and has, rightly so, a disinflationary stand. As per RBI projections, the headline CPI will come down to 4 percent only in Q2FY24. Inflation will need to be around 4 percent on a durable basis for RBI to consider cutting rates. Considering this, any rate cut before Q3FY24 seems unlikely.

Read here: What are subtle hints from RBI monetary policy? 10 experts parse MPC decisions

Where should you invest?

Anirudh Garg, Founder, Fund Manager at Invasset, PMS

The decision to maintain the policy repo rate and the continued focus on inflation targeting provides a stable environment for investors. This stability, combined with India's strong economic fundamentals and GDP growth, is likely to boost investor confidence. The banking sector may benefit from the steady interest rate environment, as it aids in better margin management. Furthermore, sectors like healthcare and education might receive a positive impact from the enhanced UPI transaction limits, enabling more significant financial transactions in these areas. However, the emphasis on inflation control and potential supply-side shocks could mean cautious investment in sectors heavily reliant on raw material prices.

Anil Rego, Founder and Fund Manager at Right Horizons

Markets have touched new highs, especially with earnings for the H1FY24 coming healthy, supporting the trajectory. Investors are bullish as they are favouring rate cuts in 2024 which will unanimously boost the equity markets. The banking sector is the most sensitive to changes in rate cycles and has been a major reason for incremental earnings in FY23 and in H1 of FY24, benefitting from the hikes and credit growth being robust and persistent. Prolonged rate cuts will eventually lead to narrowing NIM but we expect rate cuts to begin in the last quarter and hence the trend in the banking sector is likely to continue in FY24. NBFCs will be best positioned to benefit from cuts in rates as credit growth will improve followed by banks. Also, credit-sensitive sectors like auto and real estate will see higher demand.

Vijay Kuppa, CEO, InCred Money

The high interest rates prevailing now make a case for increasing allocation to debt in the portfolio to mitigate any material correction in the equity portfolio. Investors should remain agile in their investments considering regulators have become vary of excesses forming in the financial space – both lending and investing. It’s time to be ‘cautiously optimistic’! India is a bright spot among the faltering global economic backdrop. Growth numbers have been strong led by festive sales and rural demand showing some turnaround.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.