Shifting cycle

Investors should be prepared for further turmoil

Bond yields have risen and equity valuations have fallen as financial markets adjust to the reality of the Reserve Bank of India’s (RBI’s) move towards policy normalisation. The central bank has increased the repo rate by 90 basis points in the past two months and investors must brace themselves for more hikes as well as other measures such as raising the cash reserve ratio to tighten surplus liquidity. The RBI’s projections imply inflation as measured by the consumer price index will average 6.7 per cent —well above its upper limit of tolerance of 6 per cent — for the rest