Benchmark Indices Extend Losses After RBI's Rate Hike; All Eyes On Fed Now
The Reserve Bank of India (RBI) Governor Shaktikanta Das sent markets into panic mode on Wednesday as he announced the outcome of an unscheduled meet of the Monetary Policy Committee held between May 2 and May 4. He announced a 40 basis point hike in the policy repo rate with immediate effect to 4.40 per cent from 4 per cent.
“Globally, inflation is rising alarmingly and spreading fast. Geopolitical tensions are ratcheting up inflation to their highest levels in the last 3 to 4 decades in major economies while moderating external demand," Das said.
Das also announced a 50 basis point hike in the Cash Reserve Ratio (CRR), taking the CRR to 4.50 per cent. "CRR hike can suck out liquidity to the tune of Rs 83,711.55 crore," said Das.
Markets were already trading in the red zone before the Governor’s announcement at 2 pm as investors await the outcome of the US Federal Reserve later in the day where a 50 basis point rate hike is expected.
Post the announcement of rate hike by RBI governor, benchmark indices extended their losses by more than 2 per cent. The 30-share pack fell 1,306.96 points or 2.29 per cent to 55,669.03. Its broader peer NSE Nifty lost 391.50 points or 2.29 per cent to close below the 16,700 mark.
“Ahead of the Fed meeting in the US, the Reserve Bank has created a stir in the Indian markets by suddenly increasing interest rates. The prime rate has been increased by 40 basis points and the CRR has also been increased by 50 basis points. Behind this, we saw a sudden drop in the benchmark indices. Finally, the market closed below the crucial level of 16700 on the back of a negative result, which would push the market further down to 16400/16200 in the near term,” said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities.
Among sectoral indices, Nifty bank index dropped 2.5 per cent, while the finance index fell 2.6 per cent. Nifty realty index lost 3.3 per cent, indicating higher rates could potentially hurt the sector.
All sectoral indices ended in the red.
BSE Midcap index shed 2.63 per cent and the Smallcap index fell 2.11 per cent.
On the Sensex, only Power Grid (2.75 per cent), NTPC (0.86 per cent) and Kotak Bank (0.07%) ended in green. Kotak Mahindra recorded a 65 per jump in net profit in the March quarter. The bank's total income on a standalone basis during the latest January-March quarter rose to Rs 8,892.26 crore as against Rs 7,953.12 crore in the year-ago period, according to a regulatory filing.
"On the upside, 16800/16900 would act as the biggest hurdle. Reducing weak long positions is advisable near the 16800 levels and contra buying is recommended only around 16200 and below," said Chouhan.
India's 10-year benchmark bond yield jumped to 7.41 per cent, its highest level since May 2019, after the policy decision, while the rupee strengthened against the dollar to 76.26. Bond prices and yields move inversely.
Meanwhile, LIC’s IPO opened for subscription on Wednesday. As of 4:20 pm IST on Wednesday, the IPO was subscribed 61 per cent. The policyholders lead the initial round of bidding and they have subscribed 1.79 times the portion reserved for them.
The employee reserved portion has been subscribed 98 per cent and retail investors portion has been subscribed 54 per cent. Non-Institutional investors have subscribed 25 percent of their portion while qualified institutional buyers bought 33 percent of allotted quota of 3.95 crore shares, till now.
