The Reserve Bank of India (RBI) and the Monetary Policy Committee (MPC) kept the repo rate and policy stance unchanged. The banking regulator, however, took the market by surprise with the announcement of a bond sales program known as Open Market Operations (OMO).
Following the RBI announcement, the yield on the Indian 10-year bond witnessed a notable increase, climbing to 7.35% from its previous closing rate of 7.21%. RBI clarified that the sale of bonds will be conducted through auctions rather than screen-based transactions.
This move is expected to have a negative impact on non-banking financial companies (NBFCs), as it is anticipated to significantly increase their cost of capital.
Lakshmi Iyer, the CEO of Investment & Strategy at Kotak Alternate Asset Managers, now anticipates yields to first consolidate and then rise again. She also advises caution in the equity markets, as the cost of borrowing is likely to remain at elevated levels.
"Bond yields rising from 7.11% to 7.35%, is a massive bump up, I think now the yields will have to consolidate probably come down 5-10 basis points and go up that is how it's going to be. If you try to tie this into the larger markets, from an equity market standpoint, till the time the bond yields or sovereign bond yields stabilise, it's very difficult to see the corporate bond yields come down. And that clearly means that the cost of borrowing is going to remain at elevated levels. One will have to take that into consideration when you are deploying money into the equity markets as well. I don't think markets have still fathom that so I think there needs to be some bit of caution, even on the equity markets," Iyer said.
Watch the accompanying video for the entire discussion.
(Edited by : Ajay Vaishnav)
First Published: Oct 6, 2023 5:42 PM IST
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!