Andrew L Dcunha

Mumbai, Sep 15: Indian markets were directionless since start of trade today awaiting RBI policy.  The BSE  Sensex, which shuttled between gains and losses  made a smart recovery in late trades led by gains in IT and realty shares, shrugging off concerns of an expected rate hike on Friday. The Sensex was ended up by 1% or 167 points, at 16,877 and the Nifty surged 63 points or 1.25%, at 5076.

Technology stocks continued their positive momentum due to rupee depreciation; TCS, Infosys and Wipro moved up between 1.5% and 2%.Rate sensitive like SBI and DLF rallied over 3% ahead of RBI policy meet to be held on Friday. Almost all experts feel that there would be 25 basis points hike in key rates from RBI.  Rupee trimmed intraday losses in afternoon trade on Thursday following the rebound in local equities and rise in the euro. Afternoon the partially convertible rupee was at 47.73 per dollar weaker than Wednesday's close of 47.62/ but stronger from the day's low of 47.92.

In Asia, the Nikkei Stock Average closed up 2%, the Hang Seng index added 0.7%, but China’s Shanghai Composite closed down 0.2.  European stocks and the euro rallied on Thursday after France and Germany issued a joint defense of Greece, saying its place was in the eurozone despite market sentiment it might default. the DAX, CAC and the FTSE indices were up almost 2% each.

How RBI rate hike affects the stock markets, investors and the common man?

The Reserve Bank of India is likely to continue with its tight monetary policy stance to fight inflation and effect another hike in key interest rates on Friday, Sept 16. The RBI, at its last review meet in July, raised the repo (borrowing) rate by 50 basis points to 8 % and the reverse repo (lending) rate by 50 basis points to 7 %.

 RBI interest rate hikes are a clear signal for banks to increase their lending rates; and loans for housing, cars and personal purpose will be dearer.

Bank stocks suffer the most a lending and borrowing becomes dearer. Most rate sensitive sectors in the stock market are banking, real estate, autos. These suffer because loans become more expensive with higher EMI’s.

In other sectors the companies which are in expansion mode and need capital are going to suffer with credit availability becoming difficult

Markets are likely to rally if the RBI pauses on the rate hike move but a sell off is also certain in case it raises rates by 0.5 per cent.