The Indian market erased most gains to trade flat on Thursday after the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5 percent in the June policy meet, as expected. This is the second time the RBI MPC maintained a status quo after it raised the repo rate by 250 basis points (bps) since May 2022 in a bid to contain inflation.
However, RBI Governor Shaktikanta Das warned that the MPC will take further decisions promptly and appropriately as required. While the RBI reduced inflation estimates for FY24, Das believes that the headline inflation will remain above 4 percent throughout FY24.
While the Indian market remained higher during the policy announcement, soon it pared all gains to turn red. At 2:00 pm, the Sensex was trading 20 points lower at 63,123 while the Nifty fell 11 points to 18,715.
Sectors were mixed post the policy. Rate-sensitive sectors Nifty Auto and Nifty Realty shed 0.5 percent and 1.2 percent, respectively, post the policy while Nifty Bank and Nifty Financial Services sectors were up around 0.1 percent each.
Meanwhile, among other sectors, Nifty IT, Nifty FMCG, and Nifty Pharma were down between 0.6 and 1 percent each.
Both, the Sensex as well as Nifty closed 0.47% lower.
Outlook ahead
Even though the markets were not able to hold the gains post the policy announcement, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, believes that from the stock market perspective, this is positive.
The Governor’s remark that “India’s economic and financial sector remains resilient amidst global turmoil” is a reflection of India’s strong and improving fundamentals, he noted.
Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities, stated that stock markets have not reacted much to these announcements since they were mainly on expected lines. India 10-year bond yields have also witnessed a minor spike after the RBI announcement. It seems like 6.9 percent to 7.2 percent will act as a major range for the yields until RBI changes interest rates further, Sheth said.
Santosh Meena, Head of Research, Swastika Investmart, noted that the market had already factored in this policy, maintaining its bullish momentum. The governor's comment suggests a prolonged pause, which is a positive for the markets, Meena observed. Also, the focus now shifts to global markets, upcoming US data, and Fed policy. The RBI policy is likely a non-event for the market, he added.
"Technically, Nifty is trying to head towards its all-time high of 18,888, where 18,660 will be immediate support; below this, we can expect profit booking, where 18,450 and 18,180 will be the next support levels," said the expert.
Sonam Srivastava, Founder at Wright Research, an investment advisory firm, said, "The stock market's muted reaction to the policy announcements today reflects investors' anticipation of the status quo. The positive drift post announcement implies a broader acceptance of the RBI's assessment and decisions. Looking ahead, we expect the market momentum to remain largely unimpacted by these announcements with a potential for the broader markets to outperform. The banking sector's robustness has been reaffirmed by the Governor, hence we may anticipate a stable or possibly bullish outlook for banking stocks, given their resilience to rate changes. The unchanged GDP forecast and a lowered inflation projection might further buoy investor sentiment and could fuel positive movements in sectors like consumer goods and agriculture that benefit from strong consumption and a normal monsoon."
However, she advised that investors should stay cautious of any sudden global policy changes that could cause short-term volatility in the market.
Vijay Chauhan, Co-Fund Manager, Right Horizons, PMS, noted that markets have been recovering, with earnings for the fourth quarter being healthy. Midcaps have reached new highs, and large caps are now nearly less than a percent down from their peak level. Participants are bullish as they are favoring rate cuts eventually post the pause in rates.
"A cut in rates eventually will unanimously boost the equity markets across sectors. The banking sector is the most sensitive to changes in rate cycles and has been a major reason for incremental earnings in FY23 benefitting from the hikes and credit growth being robust and persistent. Prolonged rate cuts will eventually lead to narrowing NIM but we expect rate cuts to begin in the last quarter and hence the trend in the banking sector is likely to continue in FY24. NBFCs will be best positioned to benefit from cuts in rates as credit growth will improve followed by banks. Also, credit-sensitive sectors like auto and real estate will see higher demand," he said.
Divam Sharma, Founder and CEO of Green Portfolio PMS, believes that post the policy announcement, with strong credit growth, a favorable inflation outlook, and a strong rural economy outlook, NBFCs focusing on consumption demand can be considered. Also, passenger vehicles and two-wheelers manufacturers can be considered considering strong numbers and favorable outlook. The cement and steel sector should do well from here considering the strong outlook and public capex, he added.
