Market: What the experts advise now

New Delhi: Revising its key policy rates, the RBI has hiked the Cash Reserve Ratio by 0.5% to 6.5%, while the repo rate was increased by 0.25% to 7.75%. As expected and predicted, the markets have not taken well to this news, slipping deep into red on sustained selling pressure across scrips – the worst affected being auto, banking and capital good stocks.

It's time to get an expert opinion on the best course of action in such a situation.

Experts feel that the impact of friday's announcement will last at least 6-12 months. Anil Manghani and Karvy Stock broking think that it is a good idea to buy into bank stocks at this downside. Sajiv Dhawan of JV Capital opines that the market’s reaction was expected.

“The fundamentals have changed with government’s emphasis on controlling inflation and the way they are doing it through interest rates will affect everyone be it a corporate or individual and at some stage that is going go catch up and the problem is that a lot of damage is been done along the way,” he says.

Dhawan adds, "Equity markets are reflecting that, when you get fixed pauses - maybe next week going up to 11-12% suddenly equities look more risky."

Executive Director and India Economist of JM Morgan Stanley, Chetan Ahya predicts that the RBI will continue to tighten the noose, adding that he expects at least one more rate hike as of now, perhaps two. He adds that this early change means that the chances of another hike at the April Monetary policy meeting are now down to 50:50.

Asked what kind of de-rating was in order and what revision earnings estimates will see now, Dilip Bhatt informs, “So it is too early days - whether its cement or the CV sector which has a multiplier impact on the economy. So all those things will need a downward revision anywhere between 5 percent to 10 percent. All of us were expecting that Nifty is going to grow by about 17% for 2007-2008. So 14-15% growth at this stage looks a lot more achievable and normally as you proceed to the year you upgrade your earnings but from this year onwards there will be a need to downgrade the earnings as we move into the year."