RBI MPC: Experts see a 50 bps hike, pressure on the real estate sector

In the upcoming Monetary Policy Committee (MPC) review, the Reserve Bank of India (RBI) is likely to go with a 50 basis point hike in the repo rate, experts told Business Standard.

“It’s very likely that we will follow what is happening in the US and the rest of the world. It [rate hike] will be on the lines of 50 basis points,” Nikhil Kamath, co-founder of stock brokerage firm Zerodha, said.

Kamath added that given the global inflation conditions and currency depreciation, the rate hiking cycle may continue for at least the next two announcements. The Indian rupee hit an all-time low of 81.9 against the US dollar on Wednesday.

“Given the fact that our currency has depreciated so much, to protect forex, they [RBI] will have to continue raising interest rates as long as the Fed does,” Kamath added.

Vivek Iyer, partner, Financial Services (Risk) at Grant Thornton Bharat, expressed similar views.

“We expect the RBI to increase the rate by 50 basis points, specifically with an intent to tame high inflation and arrest rupee depreciation,” Iyer said.

Costlier EMIs and the limited ability of banks to transmit the rate hikes to customers may lead to the real estate sector becoming one of the worst impacted sectors after the rate hikes.

“Before June, people had extra money from gains registered in markets. This drove the registrations of new houses,” Manish Hingar, founder of financial advisory platform Fintoo, said, “However, with the rate hikes the EMIs are going to be impacted in a big way. With loans getting costlier, we might see real estate prices falling.”

“Real estate may be among the worst impacted sectors,” Kamath said, “However, almost all the sectors may see some or the other impact,”

On the other hand, “Defensive sectors such as FMCG, utilities and health care will not be affected by the rate hikes,” Iyer added.

Markets ‘considerably’ overpriced

Indian markets have been outperforming their peers, but mainly due to higher valuations.

“To stay that we are slightly expensive is being very optimistic. We are considerably overpriced in terms of multiples and valuations,” Kamath said.

“Markets can stumble down further as we have outperformed…the profit booking can come in vigorously,” Kush Ghodasara, an independent market expert, said.

Cautioning investors, Kamath added that they must stay sceptical in the coming days.