RBI Review Meet - an Update

Hi all.

The recent 25 bps hike in the rates by the RBI was very much expected by the markets and the impact of the same was fully built in the price of various asset classes. However the RBI has left open a door to take another hike rate in its next review meeting.

Till than the cloud of uncertainty would hover over the markets be it equity or debt. This leads me to review the performance of the arbitrage funds and multicap funds. In our scanner the Birla Arbitrage fund seems to be a good avenue to invest in as the return profile suggests a consistent performance by the scheme. Along with this some other offerings from the Birla stable like the Birla Sunlife Dividend Yield plus and the Birla Sunlife Monthly Income Plan too have registered decent returns over a period of time and should be looked upon while taking an investment decision.

Hence we think that current situation warrants a focus on mutual funds with a specific theme / objective. in our view we think that the above mutual funds could be considered as options for investing.

Expect RBI to increase interest rates by around 25 bps

RBI is expected to increase the interest rates by ~25 bps in its review meet on June 16, 2011.
The move is expected on the back of rising inflation levels in the country. The Inflation levels reported are at an high of 9%, which is above market expectations of 8.5%.

The increase in the interest rates is primarily to arrest the rising inflation levels. Having said this, any rise in the interest rates higher than 25 bps could be considered as aggressive move by the RBI and also seems unlikely.

In the light of the above, the movement in the bond markets, specifically the 10 yr. G-sec paper could be worth tracking. However, we feel that if that if that if the rate hike happens to the tune of 25 bps than the bond prices should not be affected either ways substantially. In case if the rate hike is above the expectations, than we might see some movements in the bond prices and hence the yields.