Debt market has priced in 4-5 rate hikes this year: Kotak AMC

India’s consumer price index (CPI) jumped to 6.95 percent in March, well above the Reserve Bank of India’s safety level of 6 percent. Inflation worries now loom large in the country as investors decide on how to play the market.

To understand the nitty-gritty of the market, CNBC-TV18 spoke to Nilesh Shah, managing director, Kotak AMC.

Shah said that the debt market has already priced in 4-5 repo rate hikes, so it will be eyeing the trajectory of inflation carefully. What the debt market is currently interested in is understanding if the number will stay elevated above RBI’s target level of 6 percent.

He said, “Debt market has priced in repo rate hike between 4 and 5 times. Whether that happens in the next month or after six months, it's not going to make a material difference. What the debt market will be looking forward to is the trajectory of inflation- does it remain elevated above RBI’s target level of 6 percent or does it start coming down as expected by the RBI, which is guided towards 5.7 percent inflation for FY23.”

He believes it is important for investors to be under leveraged at this juncture. He added that there is no harm in booking some profits after a sharp upmove in the Indian market.

“In this kind of uncertain environment where US rates, Indian rates, oil prices could go in either direction. I think it is important for investors to be unleveraged. Please do not leverage in this market, anything can happen," he said.

"Second, maintain your asset allocation. If the market comes down and valuation becomes cheaper, keep on nibbling at the bottom, keep on accumulating when markets are correcting and if markets are rising sharply, then there is no harm in taking some profit,” said Shah.

According to him, the biggest risk at this point in the equity market is being complacent. Shah highlighted that he has generated an alpha of 9 percent in the midcap fund.

“In my midcap fund, I have generated alpha of 9 percent. Now, if 9 percent is not sufficient for someone then that greedy person can go into the market, play on its own,” he said.

Watch the video for the full interview.