Rupee's fair value at 55 to dollar, Credit Suisse says

The Indian rupee recovered sharply on Tuesday after the Reserve Bank of India took steps to rein in liquidity in a move that will raise interest rates in the economy.

Government bonds slumped and interest rate swaps surged. The rupee rose to 59.13 per dollar compared with previous close of 59.89/90. (Read: What the RBI has done to defend the rupee)

Global investment bank Credit Suisse said the fair value of rupee is at 55 to the U.S. dollar, but added that the central bank should have taken these tough measures earlier.

Credit Suisse is negative on PSU banking stocks and also advised investors to sell Yes Bank & Kotak Mahindra among private lenders.

Macquarie said the direct impact of RBI's move on banks will be fairly limited though these steps have pointed out towards a crisis. The brokerage ruled out rate cuts in the near term.

Among banking stocks, Yes Bank will be worst impacted, it added.

Morgan Stanley said higher rates will be negative for banks and asset quality can continue to surprise negatively.

It advised investors to avoid companies with weak balance sheet, especially State Bank of India, Punjab National Bank and Axis Bank.

Domestic brokerage Motilal Oswal said the current measures will be ineffective as far as rupee is concerned.