RBI leaves repo rate unchanged. What does this mean for you?

Earlier today, RBIs MPC (Monetary Policy Committee) decided to leave the repo rate unchanged at 6.5%, while changing the policy stance toward neutral. The aim, as RBI maintained, was to strike a balance between taming domestic inflation and maintaining target growth. However, most experts view this decision as a prelude to a possible rate cut in December this year, or even February next year.

Says Deepak Ramaraju, Senior Fund Manager, Shriram AMC, "The RBI stance has changed to neutral, indicating that its primary focus is to balance growth and inflation. Growth has been resilient and given the short-term pressure on inflation, RBI may continue to hold interest rates unchanged in Q3 FY 2025. Based on inflation moderating below 4.5% and course of geo-political concerns, the RBI may undertake a rate cut decision in Q4 FY 2025".

So, what does this mean for your investments? How will this decision impact your existing funds? We take a look.

Good time to invest in high-yield deposits

This is a good time to invest in high-yield fixed deposits. That's because with rate cuts imminent in the upcoming quarters, you'd be able to lock-in your funds with the prevailing, relatively higher interest rate right now. As for the yellow metal or gold, it is generally considered a safe haven asset during turbulent market times. That's why you should consider making it a part of your investments, or increasing its weightage in your overall portfolio, depending on your needs.

Vijay Kuppa, CEO, InCred Money highlights that with deposit rates at elevated levels, one has an ideal opportunity for locking in high-yield fixed deposits."At the same time, high borrowing costs also make a compelling case for increasing debt allocations in investment portfolios, which offer a buffer against potential equity market corrections, which might occur due to geopolitical tensions", he continues.

With the chronic crisis in Middle-East flaring up again, as Israel looks to target Lebanon and Iran, you can expect some volatility and downturns in the equity markets, both in India and globally, in the times to come. Over the last 5 days, Sensex has dipped by over 1,900 points, or about 2.38%, and Nifty has also gone down by 2.23%. With this set to continue for some time, you can reconsider and evaluate your investments in debt.

Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India) explains that the market is confident of a rate cut in the times to come, and that the bond market has already started pricing in the same.

"We have already seen some of this already, with 10Y GOI yields at around 6.75%, having already eased significantly in last few months. So, if investors wait for rate cut to invest, it may be too late for them. Also, with corporate credit picking up, investing in corporate bond funds for a period of 3-5 years can also serve the investor well. Investors having a long term investment horizon and appropriate risk appetite can also invest in gilt funds", he continues.

Dont exit the markets yet

Though short-term biases of FII may continue towards Chinese markets keeping pressure on the equity markets, the resilient domestic flows can defy deep corrections in the equity markets despite high valuations. The markets may trend positive with subsequent rate cuts by the US Fed later this year. Hence, it wont be advisable to completely exit the equity markets during these times, notes Avnish Jain, Head - Fixed Income, Canara Robeco Mutual Fund

Jain advises to take a buy on dips approach towards the stock markets i.e. adding quality stocks to your portfolio during times of market downturn.

Shrikant Chouhan, Head Equity Research, Kotak Securities says that the current market texture is volatile, hence level based trading would be the ideal strategy for the day traders. "For the bulls now, 25,050/81,700 would be the key level to watch out. Above the same market could retest the level of 25,200-25,225/82,000-82,300. On the flip side, 24,900/81,200 would be the key support zone for the traders. Below the same, the selling pressure is likely to accelerate. Below the same, market could slip till 24,800-24,780/81,000-80,700", explains Chouhan.