What’s happening? What to do?
Over the past six months, the stock markets have experienced significant volatility due to several key factors:
1. Dampened Growth of Indian Companies: The growth trajectory of Indian companies has been subdued, impacting overall market sentiment.
2. US Trade Tariffs: The recent imposition of a 26% reciprocal tariff by the US against India has created additional pressure on various sectors, including IT, automobiles, and textiles
3. Possibility of US Recession: There are growing concerns about a potential recession in the US due to isolation, driven by the recent tariff policies and economic indicators
4. Withdrawal of funds by FIIs: The foreign institutional investors have been relentlessly selling Indian stocks, because US markets look attractive factoring in US$ currency appreciation
Today’s RBI MPC Meeting Highlights:
1. GDP Growth Forecast: The RBI has revised downwards India’s GDP growth forecast for the fiscal year 2025-26 from 6.7% to 6.5%
2. Inflation: The inflation forecast has been lowered to 4% for FY26. This reduction is attributed to falling crude oil prices, good harvest of agricultural products and other favorable economic conditions.
3. Repo Rate: The RBI has cut the repo rate by 25 basis points to 6% This change is intended to support economic activity amid subdued inflation. This is the second consecutive rate cut aimed at stimulating economic growth.
4. Policy Stance: The policy stance has been shifted from ‘neutral’ to ‘accommodative’. The RBI has taken measures to enhance liquidity through various tools.
5. Status of Bank Liquidity: The current system liquidity has shifted to a deficit due to factors such as advance tax payments, capital outflows, and increased currency circulation
6. Indian Dollar Reserves and Import Coverage: India’s foreign exchange reserves have reached $676.3 billion, providing an import cover of approximately 11 months
These measures and forecasts reflect the RBI’s commitment to maintaining economic stability and supporting growth in the face of global challenges. This robust reserve position helps safeguard the economy against external shocks.
Actionable Steps for Investors:
1. Allocate Surplus to Large Cap Mutual Funds: Take advantage of the lower market levels by investing any surplus funds into Large Cap mutual funds with a greater than 5-year timeframe.
2. Consider Debt Allocation: If your portfolio is heavily weighted in equities, consider reallocating to debt through income plus funds, which offer lower taxation (LTCG of 12.5%)
3. Multi-Asset Allocation: Diversify your investments by considering multi-asset allocation funds that invest in Equity, Debt, and Precious Metals (Gold & Silver).
4. Stay Focused on Your Goals: Maintain a long-term perspective and stay committed to your financial goals.
What to Avoid:
1. Stopping Your SIP/STP: Continue with your Systematic Investment Plans (SIP) and Systematic Transfer Plans (STP) to benefit from rupee cost averaging (lower market levels are the best time to pick units for the long-term wealth creation objectives)
2. Timing the Market: Do not attempt to time the market, as predicting short-term movements is challenging and can lead to missed opportunities and frustrations.
3. Short-Term Redeeming: Refrain from taking a very short-term view and redeeming your portfolio, as this can disrupt your long-term financial plans.
We understand that market volatility can be unsettling, but understanding the asset class behaviour, staying disciplined and focused on your investment strategy is crucial. If you have any questions or need further assistance, please feel free to reach out to us.
