BackRBI MPC Meeting: Sensex, Nifty extend losses on hawkish RBI; here's what experts say
RBI MPC meeting: Sensex, Nifty fall; rate-sensitive banking, auto, realty indices suffer after RBI maintains status quo
PremiumDomestic equity market benchmarks, the Sensex and the Nifty extended their losses while rate-sensitive sectors such as banking, automotive, and realty initially turned green briefly, but later fell after the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) maintained a status quo on policy rates and stance on Thursday, August 10, as expected.
Announcing the RBI policy committee meeting outcome, RBI Governor Shaktikanta Das said, “The monetary policy committee unanimously decided to keep the repo rate unchanged at 6.50 per cent."
Besides, the RBI MPC decides to keep the policy stance unchanged at ‘Withdrawal Of Accommodation’.
Following the announcement, the market benchmark Sensex and Nifty fell over half-per cent each and the rate-sensitive sectors such as Nifty Bank, Auto and Realty indices witnessed volatility.
Around 11:30 am, Sensex was 0.53 per cent down at 65,646 while the Nifty was trading 0.51 per cent lower at 19,533.
The Nifty Bank (down 0.55 per cent), Auto (down 0.32 per cent) and Realty (down 0.20 per cent), too, were in the red at that time.
The market took note of the growth and inflation commentary of Governor Das. “Latest CPI inflation projections for FY24, assuming a normal monsoon, is revised to 5.4 per cent, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent. CPI inflation for Q1FY25 is projected at 5.2 per cent," said Das.
Headline inflation projection for Q2 of 2023-24 has been revised up substantially, primarily due to the price shock from vegetables.
However, Das sounded upbeat about India's growth. The RBI Governor underscored that the Indian economy is the fifth largest economy in the world and India's contribution to global growth is to the tune of 15 per cent.
RBI projected real GDP growth for FY24 at 6.5 per cent with Q1 at 8 per cent, Q2 at 6.5 per cent, Q3 at 6.0 per cent, and Q4 at 5.7 per cent. Real GDP growth for Q1FY25 is projected at 6.6 per cent.
Experts' take
Let's take a look at what experts have to say about the RBI MPC outcome:
Gaurav Dua, Head Capital Market Strategy at Sharekhan by BNP Paribas
RBI policy announcements are largely in line with market expectations. Policy rates are unchanged but the commentary is hawkish given the rising vegetable and food prices and global uncertainties. Hence, the RBI has taken temporary steps to withdraw some excess liquidity from the banking system.
Also, RBI hinted that the high-interest rates could prevail for a longer period of time. As part of the initial reaction, the bond yield did firm up and banking stocks have seen some selling pressure.
However, we do not see any lasting or material impact on equity markets from the policy announcement today. We continue to retain a positive view on markets from the medium to long term and any dips should be seen as an opportunity to accumulate quality stocks keeping in mind the multi-year economic upcycle in India.
Radhavi Deshpande, President & Chief Investment Officer, Kotak Mahindra Life Insurance Company
After rightly guiding the markets in the previous policy, MPC stays rates on hold for the third time in a row. MPC continues to highlight global economic challenges including high levels of debt while it takes comfort from the domestic stable core inflation and normalising supply pressures to keep the monetary policy framework unchanged.
MPC‘s inflation target rate of 4 per cent keeps getting mentioned, with the introduction of innovative instruments to keep liquidity around adequate levels will keep markets watchful on further moves.
A mention of high current food inflation as transitory and considering a balanced demand-supply for bonds, comfortable fiscal and stable current account, we continue to expect a longish pause as our base case and bonds stay range bound with the yield curve steepening bias to stay.
Deepak Agrawal, CIO- Fixed Income, Kotak Mahindra Asset Management Company
RBI prefers to be in “wait and watch" mode to check if the recent food price inflation is getting generalized and prefers to keep rates on hold and keep the monetary policy unchanged. FY 24 inflation has been revised upward from 5.10 per cent to 5.4 per cent.
Proactive government measures to curb food inflation should assist in keeping inflation lower. RBI is likely to stay on hold for the rest of CY 2023. In order to address the Surplus Liquidity situation, RBI has asked banks to maintain an incremental CRR of 10 per cent on deposit growth between 19th May and 28th July 2023, which will reduce liquidity in the system by nearly ₹90,000 crore.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services
The MPC has delivered in line with market expectations on rates, stance and tone, with retention of rates and stance and the tone turning hawkish. The significant change is the upward revision in the FY24 CPI inflation projection from 5.1 per cent to 5.4 per cent. This means the high policy rates will remain high for long and, therefore, a rate cut can be expected only in Q1FY25. From the market perspective, there are no positive or negative surprises in the policy.
Read more: RBI MPC Meeting August 2023. Full text of RBI Governor Shaktikanta Das' address
Nish Bhatt, Founder & CEO, Millwood Kane International
The RBI keeping rates on hold is a prudent step as inflation is still within the targetted range. The key pain point within the retail inflation is due to the high food and vegetable prices which is transitory. The RBI's move to reduce system liquidity, hinting at rate tightening, or keeping rates elevated for a higher duration than earlier expected is a cause of concern.
Going forward, the expectation is that the central bank will keep rates at current levels barring any inflation shocks. A rate easing cycle is likely only from H2CY24. A slowdown in the West and an oil price spike may prove to the negative surprises.
Read all market-related news here
Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.
Milestone Alert!Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.
