Indian stock markets remained under pressure on Wednesday, October 7, after the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) unanimously raised the repo rate by 25 basis points to 5.5% from 5.25%, in line with expectations.
The Sensex fell as much as 529 points, or 0.7%, to an intraday low of 72,539.18, while the Nifty 50 declined 191 points, or 0.8%, to 22,585.05.
At its October 5-7 policy meeting, the MPC also changed its stance to ‘calibrated tightening’. The RBI raised the Standing Deposit Facility rate to 5.25%, while the Marginal Standing Facility rate and bank rate remained unchanged at 5.75%.
In his statement, RBI Governor, Sanjay Malhotra said, “After a detailed assessment of the evolving macroeconomic and financial conditions, developments and the outlook, the MPC voted unanimously to increase the policy repo rate by 25 basis points.”
RBI Governor Sanjay Malhotra indicated that rate cuts were unlikely in the near term, adding to pressure on equities.
Why are Sensex, Nifty falling?
The market reaction was also influenced by global factors. Brent crude prices rose more than 1% to around $102 a barrel after attacks by Yemen’s Iran-backed Houthis on Saudi Arabia amid concerns over crude supplies from the Middle East.
Meanwhile, the US 10-year bond yield rose to 5.31% from 5.27% in the previous session, weighing on investor sentiment. US President Donald Trump also reiterated his claims about US control over maritime traffic through the Strait of Hormuz.
V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the 25-basis-point rate hike itself had already been factored into market prices, with the RBI’s stance and its assessment of growth and inflation likely to have a greater impact.
“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.”
Vijayakumar also pointed to the narrow interest-rate differential between India and the US. He said the combination of rising US yields and a stronger dollar made a rate hike important for limiting further capital outflows and supporting the rupee.
Stocks and sectors
The market breadth remained weak. On the Sensex, Kotak Mahindra Bank, Bharti Airtel, Bajaj Finance, Eternal and IndiGo were the only gainers, while the other 25 constituents traded lower. Titan was the biggest loser, followed by BEL, Asian Paints, UltraTech Cement, Power Grid and Bajaj Finserv.
Among sectors, the Nifty Bank and Nifty Financial Services indices declined more than 0.3% each. Nifty Metal was the biggest sectoral drag, falling 1.5%, followed by Nifty Auto, which declined 1.1%. Nifty FMCG, Nifty Realty and Nifty IT also fell around 0.8% each.
What should investors do now?
Vijayakumar comments suggest that investors should focus beyond the widely expected rate hike and assess the RBI’s stance, the growth-inflation outlook, US bond yields and currency movements. These factors could determine how Indian equities respond to the tighter monetary environment.
Meanwhile, Nishchal Jain, Quant Researcher, Share.Market by PhonePe suggests that investors should avoid panic selling or aggressively chasing sharp rallies. Instead, investors should adopt a disciplined strategy by prioritizing quality large-cap stocks in Banking, FMCG, Auto, and IT while maintaining cash reserves to deploy into high-conviction opportunities on dips near major support levels.
