After a strong rebound over the past two sessions, the benchmark Nifty50 index came under pressure on Wednesday as investors reacted negatively to the Reserve Bank of India’s unexpected shift towards a tighter monetary policy stance. The Nifty opened lower and remained range-bound through the session, moving within a band of nearly 169 points — its narrowest trading range in the past six sessions.
The index eventually ended 173 points lower. Among Nifty constituents, Kotak Mahindra Bank and BSE Ltd. were the top gainers, while Titan Company Ltd. and Adani Enterprises Ltd. emerged as the biggest laggards. Sectoral performance remained weak, with Nifty IT, Metal and Realty indices coming under selling pressure, while PSU Banks attracted buying interest.
The broader market saw a mixed trend, with the Nifty Midcap 100 declining 0.63%, while the Nifty Smallcap 100 gained 0.30%. The RBI raised the repo rate by 25 basis points to 5.5% from 5.25% at its October policy meeting, marking its first rate hike since February 2023.
More significantly, the central bank shifted its policy stance from ‘Neutral’ to ‘Calibrated Tightening’. While the rate increase was largely expected, the change in stance came as a surprise to markets and weighed on sentiment. At the same time, the RBI raised its FY2027 GDP growth forecast by 40 basis points to 7.1% from 6.7%, while increasing its inflation projection to 5.2% from 5.0%.
The combination of a higher growth outlook and a more hawkish policy stance could keep bond yields elevated. The 10-year government bond yield is currently around 7.27% and could move towards 7.5% over the next six months, according to market expectations.
Siddhartha Khemka of Motilal Oswal expects cumulative rate hikes of 100 basis points over the current tightening cycle. However, he expects the pace of policy action to remain data dependent, with core inflation, broadening price pressures and second-round effects likely to influence the RBI’s next moves.
The rupee also remained under pressure, weakening 0.4% to ₹96.7 against the US dollar and hovering close to a record low. Along with crude oil prices and foreign fund flows, currency movements will remain important variables for the domestic market. With the Q2 earnings season approaching, stock- and sector-specific moves are also likely to intensify as investors assess earnings expectations and management commentary.
The GST Council meeting scheduled for Thursday is another key domestic trigger, while the December RBI policy meeting is likely to remain firmly on investors’ radar. From a technical perspective, Nagaraj Shetti of HDFC Securities said the Nifty appears to have turned lower after facing resistance near the 22,800 level.
Tuesday’s high of 22,776 could potentially mark a new lower top, although a sharper follow-through decline would be needed to confirm the formation. On the downside, 22,400 and 22,200 are the key support levels to watch, while any recovery could face resistance around 22,800 and 23,100.
Rupak De of LKP Securities said the next few sessions will be crucial, with a decisive break below 22,600 potentially reviving bearish sentiment and dragging the index towards 22,200. On the upside, a sustained move above 22,750 could bring some bullishness back into the market.
Osho Krishan of Angel One sees 22,500 as the immediate support zone. A decisive break below this level could extend the decline towards 22,300, while the 22,700-22,800 zone is likely to act as a key resistance area. A sustained move above this band would be required to revive buying momentum and improve the near-term outlook.
The Nifty Bank index traded in a range of nearly 734 points and ended marginally lower by 0.13%. A decisive breakout on either side of the range is likely to determine the index’s next directional move. Sudeep Shah of SBI Securities sees 54,600-54,500 as the immediate support zone for Nifty Bank.
A break below this range could trigger fresh selling towards 54,000. On the upside, 55,600-55,700, which coincides with the 21-day exponential moving average , is expected to act as a hurdle. A sustained move above this zone could extend the pullback towards 56,100.