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Business News/ Markets / Stock Markets/  Markets give a thumbs-down to RBI policy, crack 1%

Markets give a thumbs-down to RBI policy, crack 1%

The markets were disappointed with no dovish tinge to the policy or cut in cash reserve ratio to ease liquidity in the banking system, analysts said

The Nifty slipped 0.97%, while Bank Nifty index tanked 1.76% Premium
The Nifty slipped 0.97%, while Bank Nifty index tanked 1.76%

MUMBAI : Indian stock markets tumbled nearly 1% on Thursday as the Reserve Bank of India kept rates unchanged for the sixth time in a row and hinted that it is unlikely to cut interest rates soon.

Despite the RBI's projection of a decrease in average retail price inflation to 4.5% for the upcoming fiscal year, down from the current 5.4% forecast, the governor’s indication that a 4% target is yet to be achieved spooked rate-sensitive sectors like banks and fast-moving consumer goods (FMCG), which dragged down the benchmarks.

The Nifty slipped 0.97% to 21717.95, marginally above the 20-day simple moving average of 21691.57, while the Sensex crashed by a percent to 71428.43. 

The Bank Nifty index tanked 1.76% to 45012, close to its 200-day moving average of 44877.62, while the Nifty FMCG index cracked 2.06% to 53646.20. 

India's benchmark 10-year bond yield settled a tad higher at 7.08%.

A fall in the Bank Nifty exerts downward pressure on the Nifty as financials have a 33% weightage on the index. The FMCG index has an 8.78% weighting. The biggest drags on the Nifty were Kotak Bank which fell 3.53%, ICICI Bank which dropped 3.34% and Axis Bank which slipped 2.95%. FMCG majors ITC, with 4.04% loss and Nestle with 3.02% cut were the biggest laggards in the sector.

“The markets were disappointed with no dovish tinge to the policy or cut in cash reserve ratio to ease the liquidity in the banking system," said Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies.

“We might see rate cuts at or post the August policy, which means banks’ net interest margins could continue to remain under pressure. Apart from that, rate-sensitives could face pressure in the near term, given possible FPI outflows from such sectors. The market will remain under pressure in the near-term in the absence of catalysts back home, but might rally ahead of the general elections."

Nifty failed to close above the down gap resistance of 21970 made on 17 January and closed near the day's low, said Deepak Jasani, head of retail research, HDFC Securities. “However, the index shows a one-day up-day-down phenomenon over the last few weeks. Nifty could now face resistance at 22053 while 21448 could offer support in the near term."

The Nifty PSU Bank was the outlier, rising 2% to 6878.50, led by SBI, which hit an all-time high of 718.90. Bank of Baroda, Canara Bank and Bank of India rallied by 3.25-3.6%.

Analysts expect continued pressure on the banking sector's margins due to the need to raise deposit rates amid growing loan demands until the RBI implements rate cuts.

However, Nilesh Shah, MD at Kotak Mahindra AMC, said the policy was in line with market expectations. Markets were correcting amid lofty valuations in certain sectors and “distribution from slow-moving to fast-moving stocks" like PSU, defence and railway, Shah said.

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Published: 08 Feb 2024, 08:17 PM IST
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