Equity benchmarks witnessed a decline post the Reserve Bank of India’s (RBI) monetary policy announcement on Thursday. The market was affected by the unexpected declaration to diminish cash in the financial system, leading to a fall, primarily in banking stocks.
RBI has maintained its key interest rates for the third consecutive meeting, keeping the repo rate unchanged at 6.50%. Though rates remained consistent, the tone of the monetary policy reflected concerns over inflation, particularly if influenced by rising food prices.
The BSE Sensex, a key equity index, dropped 307.63 points, concluding at 65,688.18, while the NSE Nifty fell 89.45 points to 19,543.10. The largest decline among the Sensex stocks were observed in prominent companies such as Asian Paints, Kotak Mahindra Bank, ITC, and Bharti Airtel, among others. Contrarily, stocks like IndusInd Bank, JSW Steel, and Bajaj Finance saw gains.
Srikanth Subramanian, CEO of Kotak Cherry, remarked that the market would have preferred a less aggressive tone from the RBI. The bank’s hawkish approach was further emphasised by its decision to raise the incremental cash reserve ratio (ICRR) to 10%. This is intended to absorb the surplus liquidity that emerged from the reintroduction of Rs 2,000 notes and the sizable dividend RBI provided to the government.
Commenting on the market’s reaction, Amar Ambani from YES Securities (India) Limited stated, “The stock market was caught off-guard by RBI’s strategy to eradicate the excess liquidity.”
Asian markets displayed mixed reactions with Tokyo, Shanghai, and Hong Kong in the positive, while Seoul registered a decline. Meanwhile, European markets were trading positively.
Vinod Nair, Head of Research at Geojit Financial Services, commented on the situation by pointing out the reintroduced concerns about inflation following RBI’s projection adjustments. He stated that investors will keenly observe the upcoming US inflation data, along with domestic inflation figures.
After several consecutive days of offloading equities, Foreign Institutional Investors (FIIs) turned buyers, purchasing stocks worth Rs 644.11 crore on Wednesday. On the same day, the global oil benchmark Brent crude rose slightly to USD 87.59 a barrel. The BSE benchmark had observed an increase the previous day, concluding at 65,995.81, with the Nifty at 19,632.55.
