- Date : 05/05/2023
- Read: 4 mins
RBI has paused rate-hike currently. However, if the market conditions change, the rate hike may restart. The pause will continue until the external environment changes. Where to invest? Get the four best investment tips.
- The CPI inflation rate in India has fallen below the upper limit of the 4-6% target inflation rate prescribed by the RBI.
- Following this news, the RBI has paused, increasing the repo rate to restrict inflation growth.
- In such a situation of RBI rate-hike pause, you may consider investing in:
- Indian equities
- Bonds
- International equities
- Precious metals such as gold/silver
On April 6, 2023, the Reserve Bank of India (RBI) announced that they would not increase the interest rate currently to tame the spiraling inflation. Instead, they have kept the repo rate (the rate at which RBI lends funds to commercial banks) at 6.5%. This has surprised many experts as the inflation rate (CPI) in March 2023 still hovers around 5.66%, significantly above the lower tolerance band of 4-6%. Though the rate hike has paused, RBI governor Shaktikanta Das has clarified that they might increase the repo rate further if the external environment changes. He also said that RBI's target inflation rate remains at 4%.
The increasing repo rate since May 2022 has seen commercial bank fixed deposit (FD) rates reach as high as 8-8.5% p.a. Some banks are also providing rates as high as 9.5% p.a. On certain fixed deposits. With the pause in a repo rate hike, the FD rates will no longer rise. In such a scenario, how to invest? Let's explore the options to create a balanced portfolio.
Top 4 Investment Tips After Rate-Hike Has Paused
Investment In Indian Equities
Indian equities have become attractive. There are three reasons for that:
- Expected earnings growth of the Indian enterprises
- Correction of Indian stock prices
- Relatively strong out-performance of other emerging markets
In its April 2023 report, "Netra – Early Signal through Charts," the DSP mutual fund has said that the Indian stocks have become attractive to foreign investors. This has become possible mainly after the heavy correction in the last few months.
As the RBI has decided to pause rate hikes, the market participants discount the possibility of PE multiple expansion when the interest rate starts to come down.
Sharekhan's investment solutions head, Gautam Kalia, expects:
- Interest rates to stabilise
- Corporate earnings to grow continuously
Based on his expectation, Sharekhan's investment solutions have advised their clients to invest more in the Indian equity market.
Experts such as InCred Wealth CEO Nitin Rao believe this is the best time for you to enter the Indian equity market with a long-term view (at least 3-5 years of investment time horizon).
Try to make the most of your equity market investment in large-cap stocks. However, you may invest in small-cap equity funds as an aggressive investor.
Investment In Bonds
RBI has paused a rate hike in the repo rate. As a result, the interest rate will be stable for some time now. Until the rate remains stable before coming down, you may invest a significant part of your fund in FDs of public banks like Punjab National Bank (PNB), State-Bank Of India (SBI), and others. At current rates (ranging from 7.5% to 8% or above), you may keep investing in assets with no market risk and little credit risk.
Sharekhan's Gautam Kalia believes you may invest in debt funds (offering good yields) for five to six years. Experts believe that your portfolio's net asset value will increase as bonds' capital gains increase with a fall in interest rates in the coming times.
Investment In International Equities
Experts believe that the global stock markets have moved upwards despite witnessing high levels of volatility. They also expect the international central banks are likely to hike the financial system's liquidity if the fear of recession increases. If that happens, the demand for global stocks (especially US stocks) will rise again. If you want to diversify your portfolio, invest in mutual fund schemes in global or US stocks.
Also Read: How To Invest In International Equities?
Investment In Metals
Gold prices are already trading above Rs. 60,000 per 10 grams. However, if economic instability continues, inflation persists, and interest rate is curtailed to contain overheating of the market, prices of precious metals like gold and silver will keep rising. IIFL Securities' Anuj Gupta expects the prices of gold and silver to reach Rs 63,000-to-65,000 per 10 grams and Rs 78,000-to-80,000 per kg, respectively, in CY2023.
Also Read: Should You Invest In Gold?
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
- The CPI inflation rate in India has fallen below the upper limit of the 4-6% target inflation rate prescribed by the RBI.
- Following this news, the RBI has paused, increasing the repo rate to restrict inflation growth.
- In such a situation of RBI rate-hike pause, you may consider investing in:
- Indian equities
- Bonds
- International equities
- Precious metals such as gold/silver
On April 6, 2023, the Reserve Bank of India (RBI) announced that they would not increase the interest rate currently to tame the spiraling inflation. Instead, they have kept the repo rate (the rate at which RBI lends funds to commercial banks) at 6.5%. This has surprised many experts as the inflation rate (CPI) in March 2023 still hovers around 5.66%, significantly above the lower tolerance band of 4-6%. Though the rate hike has paused, RBI governor Shaktikanta Das has clarified that they might increase the repo rate further if the external environment changes. He also said that RBI's target inflation rate remains at 4%.
The increasing repo rate since May 2022 has seen commercial bank fixed deposit (FD) rates reach as high as 8-8.5% p.a. Some banks are also providing rates as high as 9.5% p.a. On certain fixed deposits. With the pause in a repo rate hike, the FD rates will no longer rise. In such a scenario, how to invest? Let's explore the options to create a balanced portfolio.
Top 4 Investment Tips After Rate-Hike Has Paused
Investment In Indian Equities
Indian equities have become attractive. There are three reasons for that:
- Expected earnings growth of the Indian enterprises
- Correction of Indian stock prices
- Relatively strong out-performance of other emerging markets
In its April 2023 report, "Netra – Early Signal through Charts," the DSP mutual fund has said that the Indian stocks have become attractive to foreign investors. This has become possible mainly after the heavy correction in the last few months.
As the RBI has decided to pause rate hikes, the market participants discount the possibility of PE multiple expansion when the interest rate starts to come down.
Sharekhan's investment solutions head, Gautam Kalia, expects:
- Interest rates to stabilise
- Corporate earnings to grow continuously
Based on his expectation, Sharekhan's investment solutions have advised their clients to invest more in the Indian equity market.
Experts such as InCred Wealth CEO Nitin Rao believe this is the best time for you to enter the Indian equity market with a long-term view (at least 3-5 years of investment time horizon).
Try to make the most of your equity market investment in large-cap stocks. However, you may invest in small-cap equity funds as an aggressive investor.
Investment In Bonds
RBI has paused a rate hike in the repo rate. As a result, the interest rate will be stable for some time now. Until the rate remains stable before coming down, you may invest a significant part of your fund in FDs of public banks like Punjab National Bank (PNB), State-Bank Of India (SBI), and others. At current rates (ranging from 7.5% to 8% or above), you may keep investing in assets with no market risk and little credit risk.
Sharekhan's Gautam Kalia believes you may invest in debt funds (offering good yields) for five to six years. Experts believe that your portfolio's net asset value will increase as bonds' capital gains increase with a fall in interest rates in the coming times.
Investment In International Equities
Experts believe that the global stock markets have moved upwards despite witnessing high levels of volatility. They also expect the international central banks are likely to hike the financial system's liquidity if the fear of recession increases. If that happens, the demand for global stocks (especially US stocks) will rise again. If you want to diversify your portfolio, invest in mutual fund schemes in global or US stocks.
Also Read: How To Invest In International Equities?
Investment In Metals
Gold prices are already trading above Rs. 60,000 per 10 grams. However, if economic instability continues, inflation persists, and interest rate is curtailed to contain overheating of the market, prices of precious metals like gold and silver will keep rising. IIFL Securities' Anuj Gupta expects the prices of gold and silver to reach Rs 63,000-to-65,000 per 10 grams and Rs 78,000-to-80,000 per kg, respectively, in CY2023.
Also Read: Should You Invest In Gold?
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
