Ashmore Investment expects one more rate hike by RBI this year, three next year

"I think what has happened is that in the last two-three weeks, there have been multiple events the market has dealt with whether it is the IL&FS, whether it is the merger of the three public sector undertaking (PSU) banks, whether it was the Yes Bank issue, the sudden realisation that the non-banking financial companies (NBFCs) might have a funding problem on a more sustainable basis and then last week’s oil marketing companies (OMCs) issue as well as a potential disappointment on the Reserve Bank of India (RBI) policy. So if you put all of this together, spate of events which have surprised the markets and I think the market is taking time to adjust to that," said Agarwal.

"So the real question to ask is how much of this is short-term in nature and how much of this is medium-term in nature in terms of debilitating growth prospects,” he said.

Talking about the quarterly results that will kick-off soon, Agarwal said, “I think the September quarter numbers should be fine and one hopes that the changes that we are seeing in the bond market and the FX market will not have a significant impact on earnings in the next six months, so we will have to just wait and see how this all pans out."

With regards to the Reserve Bank of India's rate hike trajectory, Agarwal said, “One should expect one more rate hike from this year followed by three more rate hikes next year. Markets are always about discounting the unknown rather than discounting the known. So in the sense that the known is usually priced in. so I am not worried about rate increases from here if they are of the order of three-four rate increases. I think a lot of that is currently priced in in the carnage that we are seeing in the markets."

“What has been helping the market so far this year has been the fact that mutual fund (MF) inflows have remained reasonably robust. They have come off from roughly Rs 20,000 crore down to Rs 6,000-7,000 crore but they are still in the positive territory and whether these will turn negative or not is the big question,” he added.