RBI MPC meeting: Here’s what to expect in Indian market post Fed rate hike

The US stock market tumbled on Wednesday after Federal Reserve Chair Jerome Powell said inflation is still too high and indicated more rate hikes ahead. The Federal Reserve implemented another 0.75 per cent rate hike on Wednesday, November 2.

As per market analysts, this 0.75 per cent hike in the interest rate was already discounted. It was the hawkish guidance by the Fed Chair, which led to starting a fresh sell-off in the US stock market. S&P 500 dropped 2.5% to settle at 3,759.69. The Dow Jones Industrial Average slid 505.44 points, or 1.55%, to finish at 32,147.76. The Tech heavy index Nasdaq Composite dived 3.36% to close at 10,524.80.

On what could be the possible impact of this hawkish stance by Fed and fall in US stocks in the Indian stock market, Market veteran V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, “The Fed commentary after the expected 75 bps rate hike, particularly Jerome Powell’s remark that the terminal rate is likely to be higher than thought earlier, disappointed markets, which resulted in a selloff in the US markets. But it is important to note that when asked about moderating rate hikes. That time is coming and it may come as soon as the next meeting or the one after that. So, it is possible that the markets can again bounce back since the economy continues to be strong and unemployment is at record lows indicating that a recession is not imminent.”

 “India’s outperformance is likely to continue since leading indicators like credit growth, capital expenditure and auto sales point to robust economic recovery. FPI buying of Rs 12,610 crore during the last 5 trading sessions can provide support to the market at lower levels. Large-cap banks, capital goods, and the premium auto segment can be bought on declines,” VijayKumar added.

Also, the Reserve Bank of India is conducting its off-cycle monetary policy committee meeting today. Ahead of this meeting what are the expectations and impact on NBFCs. Market watcher  Rahul Chander, MD & CEO of LivFin (Fintech NBFC) said ,"The Reserve Bank of India's Monetary Policy Committee's unscheduled meeting this week is unlikely to spring a surprise with an off-cycle rate hike, even though it comes a day after the Federal Reserve's policy decision and as unseasonal rains that have damaged crops intensify the inflationary pressure on the Indian economy.  MPC has gone for a cumulative 190 basis points of key policy rate hike since May, taking the repo rate to pre-Covid levels.”

“The encouraging employment numbers, showing growth at the fastest pace in three years on the back of strong factory output, is another factor which will affect any decision of the RBI in increasing rates at this time. If the MPC goes for another round of rate hike, it will add to the concerns of NBFCs as they struggle to maintain profitability in an already challenging economic environment, as frequent increases in interest rates not only dents the number of loan takers but carries a serious risk of default from existing borrowers," he added.

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