RBI policy review: Investment recovery positive, headwinds remain

Key data indicates pick-up in activity, some experts sceptical of revival

Key market indices such as the Sensex and Nifty, which initially reacted negatively after the Reserve Bank of India (RBI) raised its policy rates by 25 basis points (bps), recovered soon to close the day about a per cent higher. The neutral stance (unlike general Street estimates of a hawkish one) of RBI and the regulator’s expectation of improvement in investment activity propped up investor sentiment.

However, is the market reading too much into RBI’s investment expectation, especially in the light of the looming headwinds? First, some recent data. Gross Domestic Product (GDP) growth at 7.7 per cent for