MUMBAI: India’s equity market fell sharply on Thursday morning after the Reserve Bank of India's (RBI) monetary policy decision, where it kept the repo rate unchanged for a sixth consecutive time. The benchmarks - BSE Sensex and NSE Nifty50- fell almost 1% each at about 11 am. The 30-share index Sensex shed more than 700 points to 71,400-71,500 levels while the Nifty50 fell 220 points to 21,710 level.
The RBI Governor Shaktikanta Das-led six-member Monetary Policy Committee (MPC) maintained the repo rate at 6.5%. Five out of six members voted in favour of keeping the rate unchanged. Das said that monetary policy must continue to be actively disinflationary. RBI has kept the CPI Inflation target for next year at 4.5%.
“For the financial markets, particularly the bond and equity markets, the unchanged interest rates signal continuity in borrowing costs, influencing investor sentiments. Equity markets may experience a boost as lower borrowing costs encourage corporate investments and consumer spending, potentially leading to higher stock valuations. However, bond markets might exhibit a subdued reaction as expectations for rate cuts are postponed,” said Sonam Srivastava, Founder and Fund Manager at Wright Research.
Divam Sharma, Founder and Fund Manager at Green Portfolio said that an unchanged repo gave way for some fleeting enthusiasm for the markets but we don't see much significant impact, particularly in the long run. Equity investors should remain cautious as markets are volatile and this volatility is expected to continue.
Like the equity market, India’s bond market also turned volatile after the MPC outcome. Benchmark 10-year bond yields gave up early gains to trade flat at 7.07% after the rate announcement.
Murthy Nagarajan, Head-fixed Income, Tata Asset Management said that the debt market has reacted slightly negatively due to no statement of easing liquidity, but the long-term positive lies in their commitment to bring CPI inflation to 4% level. We should see 10-year yields going down to 7% in the coming days as monthly CPI inflation cools down below 5% in the following months, added Nagarajan.
Meanwhile, shares of PSU Banks were again in high demand on Thursday but private bank shares were trading with deep cuts. FMCG, Auto and Financial Services stocks were also trading with cuts on Thursday.
