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DELHI, MUMBAI : Indian stocks surged, snapping a seven-day losing streak, as the Reserve Bank of India retained its inflation forecast and signalled confidence in the country’s economic trajectory that analysts perceived as less hawkish.

With uncertainty about most key events now behind, the latest 50 basis points rate hike is likely to support the rupee. The Nifty regained the 17,000 mark, rising 1.64% to close at 17,094.35. The Sensex, too, rose 1.8%, crossing the 57,000 mark comprehensively, to end trading at 57,426.92.

“An in-line rate hike, along with RBI’s confidence in the economy’s growth momentum, aided the domestic market to alter the seven-day losing streak," said Vinod Nair, head of research at Geojit Financial Services. Moreover, the decision to retain inflation forecast at 6.7%, with a marginal cut but a healthy GDP forecast of 7%, indicates the resilience of the Indian economy, Nair said.

The fourth hike by RBI this fiscal now takes the repo rate to the highest since August 2019. Though the central bank’s commentary warned about prevailing risks to the domestic economy, the monetary policy committee refrained from sounding very hawkish, experts said.

“Another 25 bps to 35 bps is likely in this remaining part of CY22 and will depend on the Fed outcome and evolving global situation," said Aishvarya Dadheech, fund manager, Ambit Asset Management.

The 10-year bond yields reacted positively amid “a relief rally" and no negative surprises in the policy, analysts said. Sentiment remains buoyant amid a slight reduction in government market borrowing, robust growth in tax collections and expectations of inclusion in global bond indices. Gurvinder Singh Wasan, a senior fund manager and credit analyst-fixed income, JM Financial Asset Management Ltd, said, “Considering H2FY23 calendar announcement, we witnessed a slight steepening in the yield curve with five-year G-Secs yield moving down and 10-year G-Secs staying flat at 7.35%. Till clarity on bond inclusion emerges, we expect bonds to take cues from global events."

D.K Joshi, chief economist at Crisil, said, “We are right now in the middle of a storm. I expect further weakness in the rupee, but it’s hard to say where it will get support, given that there are too many moving parts. On bond yields, we expect a hardening from the current level of 7.39-7.4% to 7.5% by FY23-end. The rupee overshooting should also correct by the fiscal end, with the rupee regaining equilibrium below 80 a dollar."

The rupee closed at 81.35 to the dollar, gaining 0.6% from its previous close of 81.85. The 10-year bond, which saw yields come off by 3-4 bps after the policy, closed higher by 5 bps at 7.43%.

Manavi Prabhu, head of fixed income at Anand Rathi, expects the 10-year G-Sec to range 7.30-7.50% by December end, if oil remains steady or trends down from the current level of $87-88 a barrel. “Only if something drastic were to happen with respect to Ukraine or on global macros will the yield test the outer bound of 7.6% by December end," she added.

Brent crude, though, has inched up slightly in the past few sessions. However, it still continues trading below $90.

ABOUT THE AUTHOR

Ujjval Jauhari

Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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