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RBI 25 bps Repo Rate hike: After the 25 bps Repo Rate hike at the RBI MPC on Wednesday, the market is expecting further monetary tightening in the near term. The global investment bank has raised its monetary tightening target in India from 50 bps to 75-100 bps. Indian experts also expect at least two more rate hikes in FY27. As monetary tightening is expected to put equities under pressure and raise government-backed bond yields, a smart investor is expected to rejig their portfolio and increase exposure to assets that are expected to generate more wealth for them.
According to market experts, the Indian stock market is about to hit bottom. However, they also predicted that the bottom won't be made unless the Nifty 50 index dips below 22,000. They advised investors to start adding long-term government bonds from now until November 2026, and then review whether to continue the strategy or make a change. They said that one should exit precious metals for the October to December 2026 quarter and focus on the equity and government bonds. However, they advised equity investors to look at the ETF rather than direct stocks, predicting returns of 15% to 18% over the next five to six months. They also predicted a 15% CAGR for Government-backed bonds over the next two years.
Expecting more monetary tightening, Prakhar Sharma, Bank Analyst at Jefferies, said, “RBI's 25 bps rate hike to 5.5% was in line with expectations, but the stance change to calibrated tightening lifts consensus rate hike expectations to 75-100 bps (from 50 bps).”
Predicting at least two more rate hikes in the current financial year, Anuj Gupta, a SEBI-registered market analyst, said, “We are expecting up to two more rate hikes in the current financial year, lifting the Repo Rate up to around 6%.”
The SEBI-registered expert advised investors to consider government-backed long-term bonds, as they would offer higher yields due to the interest rate hike.
Whether one should exit stocks and buy bonds amid monetary tightening, Amit Goel, Chief Global Strategist at PACE 360, said, “One can exit stocks, but not the equities. I would suggest a 75-25 exposure to equities and bonds, but by equities, I mean ETFs. The market is about to make its bottom, but not before breaking below 22,000. However, after the bottom, we are expecting a sharp rebound. So, large-caps should be preferred, and I advise investors to invest in the Nifty 50 ETF and the Nifty 100 ETF. In the next five to six months, they can expect around 15% and 18% return by putting money in these two ETFs.”
The PACE 360 expert also mentioned that 25% of the portfolio should be allocated to long-term Government Bonds.
Unveiling the strategy for Government Bond investors, Amit Goel said, "One should start buying government-backed long-term bonds from now onwards to November end. Then they should review whether there is a need to change the investment plan. After buying government-backed long-term bonds, one should hold them for two years. I believe they will get 15% CAGR on their money after two years.
So, in short, it's better to invest in Nifty 50 and Nifty 100 ETFs instead of direct stocks, even if it is a large-cap stock. The Nifty 50 ETF is expected to yield 15% in the next five to six months, whereas the Nifty 100 ETF may yield 18% in this time. At the same time, a smart investor is advised to allocate 25% to government-backed long-term bonds and hold the position for 2 years, expecting a 15% CAGR.
Disclaimer: This story is for educational and informational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified financial experts before making any investment decisions.
Asit Manohar has nearly two decades of experience in the mainstream media. In this period, he has served esteemed media organisations like NDTV Profit, The Economic Times, and Zee Business. He has been working at LiveMint Digital since April 2021. During these two decades of journey in mainstream media, Asit has mainly covered external affairs, markets and personal finance. However, his earliest beats include railways, SME, MSME, and politics (Congress beat). Some of his features on political, economic, and foreign policy are documented in the parliamentary records. <br><br> While pursuing his MA (Mass Communication, Session 2004-06), Asit began his media career as a stringer at All India Radio in Varanasi. At AIR Varanasi, Asit worked with the Gyanvani, Yuvvani and Vividh Bharti teams. After working for nearly one year at AIR Varanasi, he shifted to print journalism and started working as a stringer for the HT Media Ltd, Varanasi. At HT Media Ltd in Varanasi, he covered the BHU beat. <br><br> Asit has also worked with some brokerage houses. He has worked with Religare Broking and India Infoline, where he assisted the research team in developing and executing trade strategies for intraday cash, F&O, and commodities. <br><br> Asit is a Gold Medalist in MA (Mass Communication) from BHU, Varanasi. He did his BSc. (Hons) in Mathematics from Magadh University, Bodh Gaya. Asit was a National Talent Scholarship holder during his senior secondary studies (1988-91).
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