Inflation has been spreading its tentacles on the growth prospects of the economy. This has prompted RBI to once again increase the REPO/ Reverse REPO rate by 25 basis points each. What is more significant is that RBI has maintained a hawkish stance, giving rise to speculation that further rate hikes are not ruled out in the future. The markets have taken these indications seriously, as most market men fear the rising inflation and the corresponding hardening of interest rates as a big negative for the markets in the medium term. The continuous slide in the equity markets is likely to continue for a little while longer, given the current economic scenario.
The intermediate downturn in the markets is likely to provide long term investment opportunity if the markets were to slide by another 5-10% from the current levels. Investors are advised to keep their shopping wish list ready to take advantage of the panic situation in the markets. The rate sensitive sectors such as Banks, automobiles, FMCG are likely to take a major hit in the near future, and would thus become attractive bets for long term investment. Another good opportunity for the risk averse investors would to put some money into the tax efficient FMPs being launched by the various mutual funds to take advantage of the double indexation benefit associated with the FMPs now on offer.
However, with the liquidity crunch real estate sector will continue to reel under pressure, which is likely to reflect in the downward movement in real estate prices in the medium term. Real estate prices lag the stock market downturn, hence the cooling off of real estate prices, especially the residential real estate is likely to cool off from the first quarter of next fiscal, as the Realtors will be forced to sell the residential space at a discount given their inability to raise enough resources from the markets.
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