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Business News/ Markets / Stock Markets/  RBI Policy: Why does the market look disappointed with RBI MPC outcome?
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RBI Policy: Why does the market look disappointed with RBI MPC outcome?

RBI Policy: The RBI MPC maintained a status quo in policy rates on expected lines but the stock market benchmarks the Sensex and the Nifty 50 traded lacklustre after the policy outcome.

RBI Policy: Sensex traded in the red around 12 pm to Friday after the RBI MPC outcome. (Reuters)Premium
RBI Policy: Sensex traded in the red around 12 pm to Friday after the RBI MPC outcome. (Reuters)

RBI policy: Despite Shaktikanta Das, the Governor of the Reserve Bank of India (RBI), expressing optimism regarding domestic growth, consumption recovery, and easing inflation, the domestic market sentiment stayed subdued on Friday.

Equity benchmarks the Sensex and the Nifty 50 were down by about 0.10 per cent each around 12 pm after the RBI announced a status quo on the repo rate and policy stance.

The RBI’s Monetary Policy Committee (MPC) voted by a 5:1 majority to keep key rates unchanged at 6.5 per cent.

The RBI Governor sounded optimistic about India's growth, stating that consumption would support economic growth in 2024-25, with rural demand catching up while urban consumption remains buoyant. The RBI has projected India’s real GDP growth for FY25 at 7 per cent.

Also Read: RBI monetary policy 2024: Central bank keeps real GDP growth projection at 7% for FY25

On the front of inflation, RBI believes the worst could be behind but the fight against it continues. Food price uncertainties remain a challenge even though record rabi wheat production may ease price pressure. Moreover, an early indication of a normal monsoon augurs well for the kharif season, said RBI.

Also Read: RBI monetary policy: Rates remain unchanged, growth outlook bright; 5 key highlights of RBI MPC outcome

Why does the market look disappointed?

The RBI has been keeping the repo rate unchanged for the past 14 months, but there remains a lack of clarity regarding the timeline for rate cuts. This is weighing on market sentiment.

"It is important to note that the timing of the rate cut is linked to the inflation rate reaching 4 per cent. This creates some uncertainty about when the rate cut will happen," Deepak Ramaraju, Senior Fund Manager at Shriram AMC, observed.

"Currently, we are in a deflationary zone, but there are upward pressures from food prices (due to the El Nino factor) and crude oil shocks that can add to the uncertainty. The market is concerned about a potential delay in the rate cut, which could cause it to remain range-bound in the near term," said Ramaraju.

Inflation may remain on a downward trajectory but concerns loom. Food prices have been volatile, geopolitical tensions refuse to fade away and disruption in supply channels continues to pose challenges.

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Most analysts and economists believe that the RBI may not preempt the US Fed in cutting rates. The Fed has already signalled its reliance on data to determine interest rates, weakening the likelihood of rate cuts in the current calendar year.

Also Read: SBI says there could be no rate cut before Q3FY25; here's why

"The RBI policy has been somewhat pegged to the Fed, specifically over the last two years, even as it formally targeted inflation. This seems fair, as external dynamics have been fluid, implying that the policy prerogative needs to be flexible for ensuring financial stability," said Madhavi Arora, Lead Economist at Emkay Global Financial Services.

Even if rate cuts do commence this year, they might be shallow, potentially disappointing the market.

Also Read: RBI Policy: Economists expect a shallow rate cut cycle to begin in H2FY25

“Global factors are weighing high on the governor's mind. In advanced economies, inflation remains sticky because of tight labour markets. A significantly higher debt-to-GDP ratio may pose a financial threat in adverse situations," said Siddarth Bhamre, Head of Institutional Research, Asit C Mehta Investment Intermediates. 

"We believe with inflation firmly under control, RBI is keeping an eye on Fed and global risk parameters. Also till the time GDP growth rate remains above 6 per cent, RBI may not blink first to reduce interest rates." 

What should investors do?

Be ready for an elevated rate regime because even if rates are trimmed, it is almost evident that they will not come down significantly soon unless there is a major macroeconomic shock.

As Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers underscored, "While there was some anticipation of rate cuts by the end of 2024, the RBI seems inclined to adopt a wait-and-see approach before initiating a rate cut cycle."

"The central bank's current neutral policy stance appears designed to mitigate risks without unduly unsettling the debt and equity markets. This strategy highlights the RBI's priority to balance growth with inflation control, acknowledging the significant weight of volatile food components in India's retail inflation basket and the potential impact of global oil price fluctuations."

Experts say investors should focus more on fundamentals as uncertainty on the monetary policy front can continue for some time. Indian economic outlook is robust and the upcoming March quarter earnings of Indian firms are expected to come on the better side. This will offer several stock and sector-specific opportunities.

Also Read: IRFC, Bajaj Finance to HDFC Bank — experts recommend these 5 shares to buy after RBI monetary policy meeting

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 05 Apr 2024, 12:59 PM IST
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