Indian benchmark indices snapped a two-session winning streak on Wednesday after the Reserve Bank of India raised the repo rate by 25 basis points and shifted its policy stance to “calibrated tightening”, signalling a stronger focus on inflation risks amid elevated crude oil prices and tighter global financial conditions.
The Sensex ended at 72,638.70, down 429.11 points or 0.59%. The index opened at 72,965.38 and touched an intraday low of 72,468.72. The Nifty 50 closed at 22,603.05, down 173.05 points or 0.76%. It opened at 22,690.45 and fell to an intraday low of 22,546.30.
Both indices had gained around 0.7-1% over the previous two sessions before the RBI policy announcement.
The RBI raised the repo rate by 25 basis points to 5.50%, its first rate increase since February 2023. The central bank also shifted its stance from “neutral” to “calibrated tightening”, citing risks from inflation, higher oil prices and tighter global monetary conditions.
The rate hike was widely expected, but investors were closely watching the RBI’s stance and its assessment of the growth-inflation outlook.
Rishabh Nahar, partner and fund manager at Qode Advisors, said the rate hike marked an important shift for equities.
“For equities, RBI’s rate hike marks a subtle but important shift, the easy valuation tailwind from lower rates is beginning to fade and earnings will increasingly have to justify valuations,” Nahar said.
The RBI’s decision also came as the rupee weakened to a five-month low against the US dollar, while bond yields rose following the policy announcement.
The policy decision weighed on several rate-sensitive sectors. Fourteen of the 16 major sectoral indices ended lower.
The Nifty Auto index fell 1.58%, FMCG declined 0.89% and Realty dropped 1.77%. Consumer durables fell 1.14%, while financial services ex-bank declined 0.15%.
Metals were among the biggest losers, with the Nifty Metal index falling 2.33%. A stronger dollar and weaker global metal prices added to the pressure.
The Nifty IT index also declined 1.34%, while chemicals fell 0.83% and oil and gas dropped 0.51%.
Nifty Media was one of the few sectors to gain, rising 0.69%. The PSU Bank index also advanced 1%, while the private bank index gained 0.08%.
Banking stocks initially came under pressure but recovered some of their losses by the close.
The Nifty Financial Services 25/50 index ended 0.23% lower, while the private bank index rose 0.08% and PSU banks gained 1%.
Kotak Mahindra Bank was the biggest Sensex gainer, rising 2.21%. Bharti Airtel gained 1.33%, ICICI Bank rose 1.15% and Bajaj Finance advanced 0.24%.
Thomas J Priju, portfolio manager at Karma Capital, said banks could benefit from the rate hike because loan rates may reset faster than deposit costs.
“Banks could see support to margins, since loan rates reset faster than deposit costs, and short-end bond yields are likely to rise,” Priju said.
The absence of further liquidity tightening also helped ease concerns around funding costs and margins for financial companies.
However, higher borrowing costs could eventually weigh on businesses, credit demand and consumption.
Titan was the biggest loser among the Sensex stocks, falling 3.67% after analysts flagged weaker-than-expected growth in its jewellery business during the September quarter.
The stock had already come under pressure in morning trade after its quarterly business update, with analysts pointing to a shift in the festive calendar and a high base from the previous year.
Asian Paints fell 2.07%, BEL declined 2.21%, L&T dropped 1.96%, Adani Ports fell 1.90% and HCLTech declined 1.52%.
Other major losers included Tata Steel, Infosys, M&M, PowerGrid, NTPC, Reliance, Hindustan Unilever and Sun Pharma.
Crude oil prices remained another concern for Indian equities. Brent crude rose 1.42% to $102.01 a barrel, while WTI crude gained 0.63% to $90.
Higher oil prices are a concern for India because they can add to inflationary pressure, increase the import bill and put pressure on the rupee.
The RBI’s decision to tighten policy comes against this backdrop of elevated energy prices and global bond yields.
The broader market also ended lower, although small-cap stocks managed to stay in positive territory.
The Nifty 100 fell 0.77%, Nifty 200 declined 0.74% and Nifty 500 dropped 0.64%. The Nifty Midcap 50 fell 0.75%, while the Midcap 100 declined 0.63%.
The Nifty Smallcap 100, however, gained 0.30%.
India VIX rose 2.35%, reflecting increased volatility following the RBI policy decision.
Rupak De, Senior Technical Analyst at LKP Securities, said the Nifty has shown an early sign of reversal after failing to sustain gains above a key technical level.
“The Nifty has slipped lower after finding resistance at the 50-EMA on the hourly chart. The index has shown the first sign of reversal by forming a bearish candle following a strong bullish candle. The hourly RSI has also witnessed a bearish crossover,” De said.
He said the 22,600 level would be crucial for the index in the coming sessions.
“A decisive fall below 22,600 might reignite bearishness in the market. On the lower end, a break below 22,600 could drag the index towards 22,200 levels. On the other hand, a sustained rise above 22,750 might bring some bullishness back into the market,” he said.
The RBI rate hike itself had largely been anticipated by investors. The bigger concern now is the central bank’s shift towards calibrated tightening and what it signals about the possibility of further rate increases if inflation remains elevated.
At the same time, crude oil above $100, continued foreign selling, a weaker rupee and global bond yields remain key risks for Indian equities.
The market will now turn its attention towards the September-quarter earnings season, with TCS scheduled to announce its results on Thursday. Investors will also track crude prices, the rupee, foreign fund flows and global monetary policy for further direction.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)