Asian share markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.1% while the Hang Seng is up 0.6%. The Nikkei 225 is trading up by 0.9%.
Back home, India share markets opened the day on a positive note. The BSE Sensex is trading up by 227 points while the NSE Nifty is trading up by 63 points. The BSE Mid Cap index opened up by 0.8% while BSE Small-Cap index opened up by 1.4%.
Sectoral indices have opened the day on a mixed note with metal stocks and automobiles stocks witnessing maximum buying interest. While, consumer durables stocks have opened the day in red. The rupee is trading at 67.18 to the US$.
In the news from the economy. The Reserve Bank of India (RBI) decided to increase key rates following its June monetary policy meet.
The Reserve Bank's six-member MPC (monetary policy committee), headed by governor Urjit Patel, hiked the repo rate by 25 bps (basis points) or 0.25% to 6.25%.
The repo rate is the rate at which the RBI lends short-term money to the banks. The central bank has also increased the reverse repo rate -- the rate at which the RBI borrows from commercial banks -- to 6%. This was the first rate hike by the Indian central bank in four-and-a-half years.
The RBI said that the decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.
In its second bi-monthly policy meeting for the financial year, the RBI the retail inflation range upwards to 4.8-4.9% in the first half of 2018-19, and 4.7% in the second half. Up from its previous year's target of 4%. It includes the impact from HRA (House Rent Allowance) for central government employees, with risks tilted to the upside.
The RBI monetary policy statement is one of the most tracked events in the financial world. The chart below shows how India's inflation and policy rates stand in comparison with other Asian economies.
India's Policy Rates Compared to Asian Economies
Rate hike or not, at Equitymaster, we do not attempt to predict how and when macroeconomic developments will unfold. Instead, we focus on the fundamentals and the underlying business strength of companies.
In such an environment, it makes sense for investors to be selective while buying stocks. Focus on value and the underlying fundamentals of the business. Then, they need not worry about the market.
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Moving on to news from stocks in the banking sector. The RBI approved the proposed merger of Capital First an IDFC Bank.
The banking regulator conveyed "no objection" for the voluntary amalgamation of Capital First, Capital First Home Finance and Capital First Securities with IDFC Bank, subject to compliance with the terms and conditions.
Apart from the RBI, the merger process has got approval from Competition Commission of India (CCI), National Housing Board (NHB), NSE, BSE and stock markets regulator.
The deal announced on 13 January still remains subject to approval from shareholders of the two companies and the National Company Law Tribunal.
The merger is expected to be completed in the next 4-5 months.
The deal will allow IDFC Bank to grow its retail book, which it has been unable to do in the last two-and-a-half years.
In the merged entity, IDFC Ltd (holding company of IDFC Bank) will need to hold 40% as per RBI requirements. Under the current scheme of arrangement, IDFC Ltd's stake in the merged entity will stand at 38%.
As per the agreement, IDFC Bank will issue 139 shares for every 10 shares of Capital First. The assets under management of the combined entity are pegged at Rs 880 billion.
IDFC Bank share price opened the day up by 3%, while Capital First share price opened up by 2%.
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