Mkts may fall hard today; RBI move to slow economy down

The RBI injected a lot of interesting news into the financial markets on Friday evening and this is the morning when the markets will react to it first. The reaction will not be good.
The bond markets and the forex markets have got a flight because they are trading today because they would have taken or the bond markets would have certainly taken a bit of a hit but stocks markets, I fear, may not be spared.
Brace yourself for a bit of a whammy this morning led by all banking stocks. The RBI’s move will have deep ramifications for the entire market and the economy.
I think we will fall quite hard today. What has happened on Friday is indicative of what might continue to happen for the next 6-12 months and the sooner you recognize what is happening, the better for you.
Things are changing very fast and these are not good things for equity markets. Interest rates have moved quite a bit in the last 6-9 months and there is no indication that interest rates have stopped hardening much that people would like to believe.
This will slow the economy down, this will hit lot of sectors quite directly. I think from an equity market perspective, both from a macro perspective that rates have gone up and higher interest rates are bad news for equities as also the sectoral impact, which might happen for many sectors is not good news.
I think now you need to sit back, take a hard look and ask yourself some hard questions on what this means for equity markets and you will see the fist knee jerk reaction today but the bigger ramifications might unfold over the next few weeks as the market grapples with how exactly the environment is changed and is about to change.
We will not get over this with a just one day sell off; I do not know how much we will sell off today 200-400 points that’s anybody’s guess but more importantly this is not a one day problem this will linger in the market for a while now. So I think we are getting into a sticky patch; we have already got into a sticky patch and the sticky patch is getting elongated with every such announcement, which is coming in from the Central Bank.
Impact on banks:
I think banks will be slammed for the right reasons. Don’t expect the PSU bank Chairman to say much on this because sometimes they stay in denial.
ICICI Bank has come out and said that they are going to raise home loan rates by 1%. Take a firm cue from that,that rates are going to go up across the system unless the FM calls the banks and tells them not to.
The Bank of Baroda Chairman expressed a great deal of satisfaction about the fact that credit growth has not slowed down. I think it is quite ironic because as long he keeps on saying this, the RBI will not stop hardening rates.
So the end game is clear,RBI is the whip master and it will go on cracking the whip till credit growth goes down, whatever the PSU bank Chairman have to say.
It is a sticky situation for bank stocks. I know many bank analysts are in denial about this for the last three months and many said, that it is great time to buy banks three months bank and since then most banks have come off 25-30%. They are still saying it is a great time to buy banks but banks do not perform in a rising interest rate scenario and one can keep denying that but it will not perform.
So there is more pain for banks today and what we are discussing right now is just the tip of ice berg in terms of the pain that we can see, which is higher interest rates, lower margins, lower credit growth but what we cannot see is whether, because of some cooldown in asset prices or because of interest rates going up, one can potentially sometime in the next 6 -12 months be presented with a NPA problem and if that happens then you have to re-look at banks once again and so temporarily they will fall, regardless of what price to book values are like, but by how much I do not know.