taken as a signal that money will not become cheap in a hurry. In several trading sessions after the announcement, the Nifty shed more than 5% but this news has now been discounted and there is consolidation at lower levels. Unless there is more news on this or any other front which forces the markets to change direction, adventurous investors can start taking positions again. But overall it does make the stock market a less interesting place to invest.
Of course, even risk-aware investors will have to be cautious about the stocks they pick because the latest comments from the central bank could mean short-term stock market oblivion for debt-ridden companies, the banking sector and the overall earnings outlook for
India Inc. Specifically autos, home and personal loans are most likely to go up due to this sudden and unexpected change in direction. The increase in the key lending rates has dented some of the bullishness which accompanied the new RBI governor’s installation and the message is clear—he is as keen to control inflation as he is to support growth. The hike in repo rate will increase finance cost and adversely hit housing demand during the critical festive season when the sector sees a significant percentage of its sales. This will be yet another challenge for the realty sector which is already saddled with huge debt, shrinking margins and consequently low share prices.
On the plus side, the Marginal Standing Facility (MSF) rate cut is a welcome change for banks as it reduces their cost of funding and they can actually increase credit availability. This is the rate at which banks borrow from the RBI to meet their CRR and SLR requirements and will augment liquidity in the banking system. But this is offset by the increase in interest rates which will affect demand and lead to reduced consumption and therefore stressed balance sheets of companies. The most immediate effect is likely to be seen during the upcoming Dussehra and Diwali festive season and could be the earliest indicator yet of how the Q3 earnings of certain sectors will fare. However, the