Benchmark indices opened lower on Wednesday as investors turned cautious ahead of the Reserve Bank of India’s monetary policy decision, with the central bank widely expected to raise the repo rate by 25 basis points. Rising crude oil prices, continued foreign portfolio outflows and weakness across sectors also weighed on sentiment.
The Sensex was at 72,670.99 at 9:31 am, down 396.82 points or 0.54%. The index opened at 72,965.38. The Nifty 50 was at 22,625.15, down 148.70 points or 0.65%. It opened at 22,690.45.
The weak opening came after both indices had gained for two consecutive sessions. The Nifty had risen 0.98% on Tuesday, while the Sensex gained 0.95%, recovering from their longest weekly losing streak in 25 years.
RBI MPC DECISION IN FOCUS
The RBI Monetary Policy Committee is expected to raise the repo rate by 25 basis points today, which would be the first rate hike since February 2023.
Investors are likely to focus less on the rate hike itself, which has largely been priced in, and more on RBI Governor Sanjay Malhotra’s comments on inflation, growth and the future policy stance.
Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the recent market rebound could face headwinds from crude prices and continued FPI selling.
“The focus of the market attention today will be on the monetary stance and the message from the RBI Governor. A 25 bp hike in policy rates is inevitable and already discounted by the market,” Vijayakumar said.
He added that the market’s reaction would depend on the Governor’s assessment of the growth-inflation balance.
CRUDE OIL BACK ABOVE $101
Crude oil has emerged as another concern for Indian equities. Brent crude rose around 1.1% to $101.7 per barrel, with storm risks to US oil output and Houthi attacks on Saudi Arabia outweighing increased Middle East supply.
Vijayakumar said Brent crude moving back above $101 could make it harder for the market to sustain its recent recovery.
“The 558 point rally in the Nifty from last Thursday’s low level has come as a relief for investors. But this rally will face headwinds, constraining a sustained up move. Brent crude is back above $101 and there are no signs of any reversal in FPI outflows,” he said.
Higher crude prices remain a concern for India because of their potential impact on inflation, the rupee and the country’s import bill.
FPI OUTFLOWS REMAIN A DRAG
Foreign investor selling also continues to weigh on the market. Vijayakumar said there were no clear signs of a reversal in FPI outflows, even as domestic liquidity continues to support equities.
He said the interest-rate differential between India and the US has fallen to very low levels, making the rupee another important consideration for the RBI.
“It is important to note that the interest rate differential between India and the US is at very low levels. This is unsustainable. A rate hike to preempt further capital flight has become unavoidable in the context of rising US yields and rising dollar,” Vijayakumar said.
The rupee also hit a two-month low in the previous session, adding to pressure on the central bank as it balances inflation, growth and currency stability.
ALL MAJOR SECTORS IN RED
The market decline was broad-based in early trade, with all 16 major sectoral indices in the red.
The Nifty Financial Services 25/50 index fell 0.49%, while private banks declined 0.67% and PSU banks dropped 0.73%.
The Nifty Auto index fell 0.86%, FMCG declined 0.71%, metals dropped 1.09% and consumer durables fell 1.19%. Realty was down 0.42%, while oil and gas slipped 0.54%.
IT stocks also remained under pressure, with the Nifty IT index falling 0.46%.
TITAN, TATA STOCKS AMONG LOSERS
Titan was the biggest loser among the Sensex stocks, falling 3.56% after analysts flagged weaker-than-expected growth in India’s jewellery segment following the company’s quarterly business update.
Asian Paints declined 1.60%, BEL fell 1.33%, Maruti dropped 1.06% and Axis Bank declined 1%.
HDFC Bank fell 0.63%, ICICI Bank 0.57% and SBI 0.36%.
Bajaj Finance was among the few gainers, rising 1.24%, while Bharti Airtel gained 0.72% and Eternal rose 0.11%.
BROADER MARKET ALSO WEAK
The broader market was also under pressure, although small-cap stocks showed some resilience.
The Nifty 100 fell 0.61%, Nifty 200 declined 0.54% and Nifty 500 dropped 0.47%. The Nifty Midcap 50 and Midcap 100 fell 0.32% and 0.29%, respectively.
The Nifty Smallcap 100, however, gained 0.15%.
India VIX rose 3.27%, signalling higher market volatility ahead of the RBI policy decision.
WHAT INVESTORS SHOULD WATCH
Vijayakumar said domestic liquidity and expectations of good Q2 earnings remain supportive factors, but the market needs to navigate higher crude prices, FPI selling and global yields.
“A rate hike to preempt further capital flight has become unavoidable in the context of rising US yields and rising dollar. Therefore, stabilisation of the rupee also will be on top of the RBI Governor’s mind even though the focus will be on growth-inflation dynamics,” he said.
The RBI’s rate decision, policy stance and commentary on inflation and growth will therefore be the main triggers for the market today. Investors will also track crude oil, the rupee and foreign fund flows to assess whether the recent two-session recovery can continue.
