Why Did India's Stock Market Take a Hit After RBI's Rate Hike?
Market Overview
Mumbai: On Wednesday, Indian stock markets experienced a downturn, with the benchmark Sensex dropping by 429 points following two consecutive days of gains. This decline came after the Reserve Bank of India (RBI) announced its first key policy rate increase in nearly four years.
The BSE Sensex, comprising 30 shares, fell by 429.11 points, equivalent to a 0.59% decrease, closing at 72,638.70. Out of its constituents, 26 stocks ended lower while only four managed to gain. At one point during the trading session, the Sensex dipped by 599.09 points, reaching a low of 72,468.72.
Similarly, the NSE Nifty index saw a decline of 173.05 points, or 0.76%, finishing at 22,603.05.
Analysts attributed the market's negative sentiment to rising crude oil prices and ongoing foreign fund withdrawals.
Among the major losers in the Sensex were Titan, Bharat Electronics, Asian Paints, Infosys, Larsen & Toubro, and Adani Ports.
In contrast, Kotak Mahindra Bank, Bharti Airtel, ICICI Bank, and Bajaj Finance were among the gainers.
Brent crude oil, the global benchmark, surged by 1.41% to reach USD 102 per barrel.
The RBI raised its benchmark interest rate by 25 basis points to 5.50% on Wednesday, marking its first increase in nearly four years. The central bank indicated that additional hikes could be on the horizon due to rising inflation and a weakening currency.
The six-member Monetary Policy Committee unanimously voted for the repo rate increase, which is the first since Governor Sanjay Malhotra took office in December 2024.
While this move was largely anticipated, the central bank surprised many by shifting its stance to 'calibrated tightening', effectively ruling out any rate cuts in the near future.
"Rate cuts are off the table for now, and future policy actions will either be rate hikes or pauses, depending on evolving conditions and outlook," Malhotra stated while announcing the MPC's decisions.
Foreign Institutional Investors (FIIs) sold equities worth Rs 2,961.30 crore on Tuesday, as per exchange data.
"With the RBI's expected rate hike, the domestic market reacted more strongly to the policy shift from neutral to calibrated tightening, indicating a change in the rate cycle. While the upward revision of growth projections reaffirmed the strength of domestic fundamentals, the heightened inflation outlook and the RBI's focus on price stability dampened sentiment," commented Vinod Nair, Head of Research at Geojit Investments Limited.
In Asian markets, South Korea's Kospi, Japan's Nikkei 225, and the Hang Seng index all closed lower.
European markets were also trading downwards, while US markets had a positive close on Tuesday.
On Tuesday, the Sensex had surged by 685.34 points, or 0.95%, closing at 73,067.81, while the Nifty rose by 220.35 points, or 0.98%, to finish at 22,776.10.