However, the market players think that the present hardening interest rate regime is not sustainable in the longer run.
Arun Kejriwal, Director, KRIS Capital, said, The RBIs decision to hike the CRR by 50 basis points and repo rate by 25 basis points will have a very negative impact on the market. This will be the beginning of a new fall in the market. The impact will be felt across the sectors and particularly the banking sector stocks will be hammered badly.
He said, in case the banking sector offers risk-free return at the rate of 11-12% for the fixed deposits, then it will deter the investors from taking risk in the highly volatile market.
Inflation is another serious issue which has not shown any signs of subsiding and has more or less remained at the same level which the RBI is seriously monitoring. With these measures, RBI is trying to squeeze the liquidity in the market, he added.
Sanjay Sinha, CIO, SBI Mutual Fund said, The apex banks decision will have a negative impact on the overall market in the next week.
However, the present trend of the interest rate going up is not sustainable for the long-run. The inflation may come down once the crude oil prices get stabilised in the middle of this year. The rising interest rates will likely take a pause by the third and fourth quarter of this calendar year. The impact on MFs may vary on the basis of asset classes.
Sameer Kamdaar, national head, Mata Securities, said, The apex banks decision will have major bearish impact on the equity and bond market.