Repo Rate hike impact: ‘Mutual fund schemes at the shorter end may have better earning’ | The Financial Express

Repo Rate hike: ‘Mutual fund schemes at the shorter end may have better earnings’

Mutual fund investors should not base their decisions on interest rate cycles and market movement. Instead, they should stay invested with a long-term vision.

Repo Rate hike: ‘Mutual fund schemes at the shorter end may have better earnings’
No impact of today's repo rate hike on mutual fund investors. Representative image

There would not be any significant impact of today’s repo rate hike on mutual funds. Experts suggest that investors should not base their decisions on interest rate cycles and market movement. Instead, they should stay invested with a long-term vision.

The RBI’s decision to raise the key policy rate by 50 basis points was on expected lines. However, with the reset of overnight rates, short-duration mutual fund schemes may have better earnings.

“The hike is largely in line with expectations and was already factored in by the markets. Hence, there is not much impact. However, with overnight rates having reset, mutual fund schemes at the shorter end will likely have better earnings/accruals to their portfolios,” Akhil Mittal, Senior Fund Manager-Fixed Income, Tata Mutual Fund told FE PF Desk.

Necessary step

The RBI decision was seen by market and investment experts as a necessary step to tame inflation and manage emerging macroeconomic risks. 

“Given the prevailing inflationary headwinds and geopolitical uncertainty, RBI’s continued withdrawal of their accommodative stance and a 50 bps hike is a necessary step to contain inflation and manage emerging macro risks. While the Indian economy has shown resilience compared to other major global economies, a cautious monetary policy is expected to address the risks of rising instability in the global economic and financial environment,” said Surojit Shome, Managing Director and CEO, DBS Bank India. 

Also Read: How will rate hike impact homebuyers, and what should they do now?

Non-event for debt investors

Arun Kumar, Head of Research at Funds India, said the rate was a “non-event” for debt Mutual Fund investors as the rate hike was in line with market expectations. 

“The current rate hike was already discounted in the yields across different tenures. The yields continue to remain range bound and there are no sharp yield movements post the rate hike. It’s a non-event for Mutual Fund debt investors as this rate hike was in line with market expectation,” said Kumar.

Markets welcome rate hike

Experts say that Indian stock markets have moved on with the new policy rate regime, as reflected through the stock market movement. BSE Sensex jumped over 1000 points today to close at 57,426.92 while NSE crossed the 17,000-mark, rising 276.25 points on the date of the repo rate hike.

With the festival season on, it is expected that many companies would post good earnings.

“Today’s interest rate hike of 50 basis points takes the Repo Rate to 5.9 per cent. The inflationary expectation for FY23 by RBI is projected at 6.7 per cent, with FY23 Real GDP growth projection at 7 per cent. The Indian stock markets absorbed this regulatory change and moved on, currently moving over 17,000 mark,” Tejas Khoday, CEO and co-founder of FYERS, a trading platform said.

Also Read: Home loan interest rates to jump

“With monsoon rainfall at 7 per cent above the Long Period Average (LPA), a rise in manufacturing capacity utilisation (~75 per cent), and higher bank credit growth (16.2 per cent), this festival demand could boost the earnings of many companies in the consumerism-oriented sectors. These are positive signs for firms expected to clock in record sales, especially after a 2-year hiatus in consumer spending due to the Covid impact,” he added.

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