Benchmark equity indices declined by about 0.76% on Wednesday, reversing recent gains (partially) after the Reserve Bank of India (RBI) raised the key policy rate, or repo rate, by 25 basis points to 5.50% to contain rising inflation. It was the central bank’s first repo rate hike since February 2023.
In its monetary policy announcement, the central bank also changed its policy stance from neutral to calibrated tightening, signalling the possibility of further rate hikes. The shift in stance further dampened investor sentiment, even though the 25-basis-point rate hike was widely expected.
After a weak opening and an initial recovery attempt, the Sensex and Nifty failed to sustain their gains and traded in a narrow range. The Sensex settled at 72,638.11, down 429.11 points, or 0.59%, while the Nifty closed at 22,603.05, down 173.05 points, or 0.76%, amid fresh selling across rate-sensitive and other sectors.
“Cautious sentiment prevailed throughout the session after the RBI raised the interest rate by 25 bps to tame rising inflation, resulting in fresh selling across rate-sensitive and other sectors,” said Ankur Punj, Managing Director, Equirus Wealth.
With the central bank indicating a hawkish stance going ahead, markets fear that further rate hikes, a prolonged war and higher crude oil prices could hurt growth prospects over the medium to long term, Punj added.
“The overall market tone remained neutral following the RBI’s widely anticipated 25-bps repo rate hike to 5.5%, with the stronger growth outlook initially supporting rate-sensitive sectors like banking,” said Ajit Mishra, SVP – Research, Religare Broking.
However, sentiment softened as investors weighed the higher inflation outlook and the shift towards a calibrated tightening stance, keeping the broader market mood cautious. Global macro concerns added to the pressure, with Brent crude rebounding above $101 a barrel, while continued foreign outflows, elevated global bond yields and rupee weakness remained key overhangs for domestic equities, Mishra added.
Market breadth was negative, with 2,353 losers against 2,018 gainers on the BSE. Investors’ wealth declined by Rs 2.63 lakh crore to Rs 471 lakh crore.
On the sectoral front, metals remained the key drag, followed by rate-sensitive realty, auto and consumer durables stocks, while banking stocks ended with modest gains. The broader indices traded mixed, with the Nifty Midcap 100 declining 0.63%, while the Nifty Smallcap 100 gained 0.30%.
Continuing their selling spree, foreign portfolio investors sold shares worth Rs 6,121.37 crore, while domestic institutional investors bought shares worth Rs 4,596.57 crore, according to provisional data released by the exchanges.