Sensex falls 215 points in volatile trade after RBI’s rate hike; Nifty below 16,400

Equity benchmarks extended their decline for the fourth straight session on Wednesday, with the Sensex falling 214.85 points after the Reserve Bank raised the key interest rate by 50 basis points. Continuous foreign fund outflows and surging crude oil prices also weighed on markets.

The 30-share BSE benchmark dropped 214.85 points or 0.39 per cent to settle at 54,892.49. During the day, the benchmark hit a high of 55,423.97 and a low of 54,683.30. The broader NSE Nifty declined 60.10 points or 0.37 per cent to finish at 16,356.25.

Home, auto and other loan EMIs will rise after the Reserve Bank of India  (RBI) on Wednesday raised the key interest rate by 50 basis points, the second increase in five weeks, to rein in rise in prices that it saw continuing to hurt consumers in the near term.

With inflation persistently hovering above the upper tolerance limit of 6 per cent, the RBI’s six-member rate-setting panel voted unanimously to raise the lending rate of the repurchase (repo) rate by 50 basis points to 4.90 per cent, Governor Shaktikanta Das said.

From the Sensex pack, Bharti Airtel, ITC, Reliance Industries, Asian Paints, IndusInd Bank, ICICI Bank and Kotak Mahindra Bank were the major laggards. In contrast, Tata Steel, State Bank of India, Dr Reddy’s, Bajaj Finance, TCS and Titan emerged as the gainers.

“RBI’s projections of GDP growth rate of 7.2 per cent and inflation of 6.7 per cent for FY23 reflect a realistic monetary policy. The higher inflation projection indicates that the central bank recognises the seriousness of inflation and the 50 bps repo rate hike is a message that they are determined to anchor inflation expectations. The Governor’s remark that the economy remains resilient and recovery has gathered momentum, is bullish from the market perspective,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The increase follows a 40 bps rise in early May at an unscheduled meeting that kicked off the central bank’s tightening cycle.

To balance the inflation-growth dynamics, Das said RBI will remain focused on the withdrawal of accommodation as system liquidity continues to be high. Withdrawal of accommodation will be done in a way that growth will continue to get adequate support, he added.

The Monetary Policy Committee (MPC) raised its inflation forecast for the current fiscal (April 2022 to March 2023) to 6.7 per cent from April prediction of 5.7 per cent but retained its economic growth projection at 7.2 per cent.

Elsewhere in Asia, markets in Shanghai, Tokyo and Hong Kong ended higher, while Seoul settled lower. European markets were trading mostly lower during afternoon trade. Stock markets in the US had ended with gains on Tuesday.

“Quite contrary to outcomes of the previous MPC meets, the rate hike and the subsequent steps announced this time have been fairly in line with the consensus estimates. While RBI’s stance has not changed to neutral, the subtle shift from the words ‘remaining accommodative’ to ‘withdrawal of accommodation’ is an important take-away.

“The MPC also increased its CPI estimates to 6.7 per cent from 5.7 per cent for FY23, which now appears to be a more realistic level. This contributes to enhanced creditability and confidence in RBI’s policy decisions,” said Yesha Shah, Head of Equity Research, Samco Securities.

Meanwhile, international oil benchmark Brent crude jumped 0.93 per cent to USD 121.69 per barrel. Foreign institutional investors offloaded shares worth Rs 2,293.98 crore on Tuesday, according to stock exchange data.

READ MORE: RBI hikes repo rate by 50 basis points to 4.90% to tame inflation; EMIs set to go up

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