In India, the Reserve Bank of India has already hiked rates four times in the current fiscal year to control inflation. The problem is that while interest rate hikes can help contain inflation, they can also hurt growth and spoil the mood in financial markets. Will your equity and debt UCITS be impacted?
According to fund managers, the market expected a somewhat dovish tone from the Federal Reserve, but the central bank provided no such indication. The Indian rupee weakened against a strong dollar, which hit its highest level in a week after the Fed’s announcement. Yields on government bonds also rose.
Fund managers believe that while rate hikes may continue in the United States, they may not be as significant. Some fund managers believe that the tightening of rates will continue for some time around the world.
“This would largely keep global central banks on a path of continued tightening, and we expect the same in the case of India as well. We believe RBI will raise the repo rate with 6, 75% as terminal support rate Given the strong dollar and our current account deficit situation, we do not believe that RBI would let its guard down or pause sooner as this would create new speculative risks on INR. Considering that RBI has missed the inflation target zone for three consecutive quarters and that RBI is required by law to provide explanations to the government, we believe that RBI will not maintain even stricter vigilance and hence will tighten its policy at levels where it is safe to meet inflation targets and not pause prematurely on hope.In this outlook, we expect yields to tighten by 15 to 25 basis points at the co urs for the next two months. The yield curve should remain flat in motion,” says Akhil Mittal, Fund Manager, Tata Mutual Fund.
Mittal also indicates that the hardening of yields will lead to a possible impact of the MTM on bond investors in the short term. However, it will also provide better regularizations for existing and new investors once the yield increases.
On the other hand, some fund managers believe that even if RBI follows the Fed, the impact will not be very large as Indian markets have already priced in the bulls. Fund managers say stock markets can remain volatile for some time and investors should be prepared for this.
“RBI is unlikely to react materially to the US Fed hike as it was in line with expectations and was widely discounted by markets. RBI has spoken of being data driven and while it will seek to contain inflation, it will also support the growth of the economy. Markets will continue to be volatile due to global inflation concerns and geopolitical tensions; however, investors should continue to invest for the long term says Ajaykumar Gupta, Commercial Director of Trust Mutual Fund.
Suresh Sadagopan, Chief Planner, Ladder7 Financial Advisors, says the situation is extremely serious and investors, especially new investors, should proceed with utmost caution. He says individuals should think seriously about financial planning. They should have a provident fund in place. If they have goals coming up in the next three years, they should save some money for that. For short-term goals, stick to short-term debt funds. You can also try to achieve your goals with target maturity plans.
“Investors should understand that the scenario is completely unpredictable. We have no control over it. We may also be affected by a global recession, so even the future is uncertain. That’s why you need to be careful about your goals and your asset allocation at this stage,” Sadagopan says. “Your investments will be affected, but there’s no point in trying to alter your plans by looking at short-term trends.”