The stage is well set for the Reserve Bank of India to slash the repo rate from the current 7.75%. Inflation, as measured by the Wholesale Price Index, is at one of its lowest points in several years, helped by falling global crude oil prices, which have seen a sharp dip in recent months.
WPI inflation for January declined to (-) 0.39% versus 0.11% in December. This could be time for the RBI to signal a softer interest rate regime to spur growth. It already kicked off the rate cut cycle on January 15 by lowering the repo rate by 25 basis points, the first reduction since May 2013.
If market expectations are anything to go by, the coming months could see a series of rate cuts by the central bank.
Market estimates for rate cuts are in a wide range, from 50 basis points to a massive 175 basis points.
There is a good reason why the market is hoping for further rate cuts.
Loans will become cheaper, resulting in higher offtake.
While industry will gain by accessing cheaper loans, retail borrowers, too, will benefit because of lower EMIs on loans taken to purchase goods ranging from consumer durables to cars and homes.
All of this drives economic activity and, as a result, has a direct bearing on asset classes.
The equity market rose 730 points on January 15 after the RBI announced the rate cut. Rate-sensitive sectors such as banks, real estate and automobiles do better when interest rates fall.
Rate cuts also have a direct bearing on debt funds and fixed-income securities, including instruments such as bank fixed deposits, Public Provident Fund, National Savings Certificate and Kisan Vikas Patra.
So, how should you position yourself as an investor in a falling interest rate scenario? Our cover story starting on page 18 tells you how to structure your investment portfolio to take advantage of lower interest rates. We tell you how the stock market and rate-sensitive sectors are likely to react if the RBI obliges the market.
We also bring you some stocks that you can bet on during the period.
We apprise you on what your strategy should be on debt instruments and whether real estate, which has been going through an extended lull, would be a good investment at this point. There are major changes in offing in the National Pension System (NPS) after the recent passage of the PFRDA Act.
We bring to you a detailed interview with the new Chairman, PFRDA, Hemant G Contractor, on what the new NPS structure would look like.
On another front, the Money Today FPCIL Awards 2013-14 saw some of the finest financial sector entities across banks, insurance companies, mutual funds, stock brokers and financial advisors, walk away with the prized trophies.
The awards are aimed at setting new benchmarks in product innovation and service delivery across the financial sector spectrum. We bring you a detailed coverage of the event.