Rising India bond yields may threaten stock market valuations, warns Chris Wood after ‘hawkish’ RBI policy

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Updated: April 6, 2018 11:53:42 AM

After India’s apex bank RBI yesterday kept the policy rates unchanged for the fourth consecutive time in its monetary policy review, CLSA’s Chris Wood says that RBI has delivered a hawkish message.

“Increase in India yield is a threat to equity valuations,” Chris Wood of CLSA said. (Image: Reuters)

After India’s apex bank RBI yesterday kept the policy rates unchanged for the fourth consecutive time in its monetary policy review, CLSA’s Chris Wood says that RBI has delivered a hawkish message. “Increase in India yield is a threat to equity valuations,” ET Now reported Chris Wood as saying.

The Reserve Bank of India (RBI) in its first monetary policy meeting for the new financial year decided to maintain status quo with neutral stance on concerns over rising crude oil prices and financial market volatility. According to Chris wood, the rise in yield will pose a threat to equity valuations.

In its press release, RBI said that financial markets turned volatile in February and March due to uncertainty posed by the pace of normalisation of US monetary policy, and rising concerns surrounding global trade. RBI noted that equity markets globally have shed most of the gains of the previous quarter in a heavy sell off in February-March, which was attributable to optimistic US job reports and the US imposition of new tariffs on Chinese goods.  

“In currency markets, the US dollar, which recovered somewhat in early March on an optimistic outlook of the economy, shed most of its gains in the latter part of the month on a less hawkish stance of the Fed and on anxieties surrounding a possible trade war,” RBI said in its report.

According to the apex bank, while global economic activity has gathered pace, financial market volatility and potential trade wars pose a threat to outlook. RBI says that while global growth and trade have been strengthening, increasing trade protectionism globally and general financial market volatility could derail the ongoing global recovery.

Interestingly, in the six-member committee while Chetan Ghate, Pami Dua, Ravindra H Dholakia, Viral V Acharya and Urjit Patel voted in favour of the monetary policy decision, Michael Debabrata Patra stood out as a lone hawk who voted for an increase in the policy rate of 25 basis points.

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