India’s equity market benchmarks, the BSE Sensex and NSE Nifty 50, closed in the red on Friday as the lack of immediate liquidity-enhancing measures and the status quo stance maintained by the Monetary Policy Committee (MPC) disappointed the markets.
The Sensex hit a high of 78,357 and a low of 77,476 in intraday deals – a decline of nearly 900 points. The Sensex eventually ended the day 198 points lower at 77,860. The Nifty 50 settled at 23,560, down 43 points. Friday is the third straight session when the indices have registered a decline.
The MPC of the Reserve Bank of India (RBI), led by Governor Sanjay Malhotra, cut the repo rate by 25 basis points to 6.25 per cent on Friday. This is the first-rate cut by the central bank in five years. This decision comes a week after the Union Budget of FY25-26 wherein the government decided to cut personal income tax to boost consumption.
Ankita Pathak, Chief Macro and Global Strategist at Ionic Wealth said that the markets seem to be disappointed by the lack of further liquidity injections.
“The liquidity deficit will spike without a liquidity injection in March 2025, and the RBI is likely to alleviate the pressures. Having already conducted Rs 70,000 crore of OMOs, more liquidity injections in FY25 are likely. Growth for FY25 has been revised downwards to 6.4%, and inflation is still expected at 4.8%. Overall, this is a policy in line with expectations, but markets will expect liquidity injections going forward,” added Pathak.
Vinod Nair, Head of Research, Geojit Financial Services said that the yields edged higher as investors were disappointed by the absence of anticipated liquidity measures, leading to profit booking in the indices.
India’s 10-Year Bond Yield rose 2.45% on Friday. Rajeev Radhakrishnan, CIO - Fixed Income, SBI Mutual Fund said that while the rate cut was clearly subjective, the lack of specifics on liquidity could potentially impeded transmission. “While yields have moved up a bit, it is anticipated that the RBI would continue to ensure targeted infusion of liquidity over the coming months that should enable yields to stay anchored,” added Radhakrishnan.
The reduction in repo rate comes amid a slowdown in India’s economic and corporate earnings growth, falling rupee against the dollar, and global economic uncertainty, with US President Donald Trump imposing tariffs on Canada, Mexico, and China. These factors are currently weighing on market sentiments.
Sonam Srivastava, Founder and Fund Manager at Wright Research PMS said that from a market perspective, this rate cut is expected to have a positive impact on rate-sensitive sectors.
“Banking and financial stocks may see increased credit demand, improving net interest margins in the near term. The real estate sector stands to benefit as lower interest rates on home loans could boost housing demand. Similarly, consumer durables and auto segments may experience higher sales, particularly in the premium category, as finance costs decline,” stated Srivastava.