Stock market benchmarks, the Sensex and the Nifty 50, suffered significant losses in morning trade on Wednesday, 7 October, ahead of the RBI monetary policy outcome. The Sensex crashed nearly 500 points, or 0.65%, to an intraday low of 72,591, while the NSE counterpart Nifty 50 crashed nearly 0.80% to 22,600 during the session. The BSE 150 Midcap and BSE 250 Smallcap indices also declined by up to half a per cent.
HDFC Bank, Titan, ICICI Bank, Reliance, and Axis Bank were among the top drags on the Sensex around 9:30 am.
Why is the stock market down today?
Let’s take a look at three key factors behind the fall in the Indian stock market:
1. Caution ahead of RBI MPC
The market witnessed a selloff ahead of the RBI policy decision. The central bank is expected to raise the repo rate by 25 basis points. While a rate hike could be discounted, the appears nervous about the prospects of a hawkish RBI, potentially signalling further rate hikes. A revision of growth and inflation estimates will also be key monitorables.
“The focus of the market attention today will be on the monetary stance and the message from the RBI Governor. A 25 bp hike in policy rates is inevitable and already discounted by the market. What is not discounted is the monetary stance and the central bank’s view on the emerging growth-inflation dynamics. Therefore, the market’s response to the policy would be influenced by the Governor’s comments on the emerging scenario,” said V K Vijayakumar, Chief Investment Strategist, Geojit Investments.
2. Oil prices rise
Crude oil benchmark Brent crude rose by more than 1% to trade near $102 per barrel after attacks by Yemen’s Iran-backed Houthis on Saudi Arabia against increased supplies of Middle East crude.
Meanwhile, US President on Tuesday (local time) reiterated his claims about US control over maritime traffic through the Strait of Hormuz. Trump said the waterway “belongs to the United States Navy and the United States.”
3. US bond yields jump again
The US 10-year bond yield jumped to 5.31% after declining to 5.27% in the previous session, weighing on stock market sentiment.
Bond yields in the US have risen to levels not seen since 2002, creating panic in the stock market and triggering foreign capital outflow. US 10-year Treasury yields hit 5.349% on 5 October, its highest level since 3 April 2002. The rise in bond yields has been triggered by expectations of further rate hikes and concerns about government finances.
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