Equities fell on Wednesday after the Reserve Bank surprised the market with mid-cycle rate increase To check rising inflation.
The move came just before the Federal Reserve’s policy decision, with analysts focused on anticipating a similar move by the US central bank as well as countering sharp price increases from geopolitical tensions.
After a sharp start, the 30-share BSE Sensex came under heavy selling pressure after RBI hiked interest rates, closing down 1,306.96 points or 2.29% at a two-month low of 55,669.03. It was his third consecutive losing season. Similarly, the broader NSE Nifty ended 391.50 points or 2.29 per cent lower at 16,677.60.
The market capitalization of all the companies listed on BSE fell by Rs 6.27 lakh crore to Rs 2,59,60,852.44 crore. Bajaj Finance was the biggest loser in the Sensex pack, falling 4.29%, followed by Bajaj Finserv, Titan, IndusInd Bank, HDFC Bank, Maruti and RIL.
Only three constituents managed to end higher – PowerGrid, NTPC and Kotak Mahindra Bank, rising up to 2.75%.
In a move that raised borrowing costs for corporates and individuals, the RBI on Wednesday raised the benchmark lending rate by 40 basis points (bps) to 4.40% after an unscheduled MPC meeting to keep inflation above the 6% target. can be kept For the last three months.
The Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, also raised the level of deposits requiring banks to maintain cash reserve by 50 bps to 4.5% to infuse ₹87,000 crore liquidity from the banking system.
The CRR hike will be effective from May 21.
This is the first rate hike since August 2018 and the first instance of an unscheduled hike in the repo rate (the rate at which banks borrow from the RBI) by the MPC. “MPC’s decision…is surprising as it came on the date of opening of LIC IPO. The proactive move of MPC is justified from inflation management point of view, but timing leaves much to be desired.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “The Sensex’s fall above 1,000 points has spoiled the sentiments on the opening day of India’s biggest IPO.”
Julius Baer India Managing Director Unmesh Kulkarni said the MPC’s action comes in the wake of concerns that the RBI has under-estimated inflation, and is behind the curve in changing its monetary policy stance.
“Markets have clearly been taken by surprise, with the 10-year benchmark G-Sec yield jumping intra-day to 7.40%. Given the elongated government borrowing calendar this year, RBI has a tough job to manage the market yield expectations while considering weekly auctions in a non-disruptive manner,” he said.
In the broader market, the BSE Midcap gauge fell 2.63%, while the Smallcap index fell 2.11%. 2,548 shares declined, while 826 advanced and 101 remained unchanged.
Sector-wise, BSE Consumer Durables was the biggest loser at 3.88%, followed by Realty (3.31%), Consumer Discretionary Goods & services (3.01%), healthcare (2.92%) and telecommunications (2.73%).
The world markets were in wait and watch mode before the Fed’s policy decision. Markets in Seoul and Hong Kong closed in the red, while Shanghai and Hong Kong remained closed for the holidays. Europe’s stock markets also declined in the afternoon session. There was a jump in trading on the US stock exchanges on Tuesday.
Meanwhile, international oil benchmark Brent crude jumped 3.12 per cent to $108.3 per barrel. The rupee on Wednesday gained 8 paise to close at 76.40 (provisional) against the US dollar.
Foreign institutional investors sold shares worth a net ₹1,853.46 crore on Monday, according to stock exchange data.