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NEW DELHI : Indian stocks declined for the third straight session on Thursday amid fresh worries about a hawkish US Federal Reserve, with benchmark indices Nifty and the Sensex falling 0.94% and 0.97%, respectively.

Minutes of the Federal Open Market Committee meeting indicated that the US central bank may take aggressive steps to cool red-hot inflation. The minutes showed that “many" members of the committee favoured raising rates by a half-percentage point last month but opted for a quarter-point move because of the war in Ukraine. The Fed also signalled it would shrink its massive bond holdings at a maximum pace of $95 billion a month, tightening credit across the economy.

Market caution
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Market caution

The market expects the Fed to hike rates by 50 bps in its next meeting and by around 200 bps in 2022, said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services. This, along with the expected balance sheet reduction, will be a headwind for equity markets globally, he added. Whether the markets can remain resilient depends on the Fed’s ability to manage a ‘soft landing’ of the US economy, preventing it from slipping into recession, Vijaykumar said.

Global markets also remained weak. In Asia, Japan’s Nikkei, Taiwan, Hong Kong’s Hang Seng, and Shanghai Composite closed with losses of 1.23%- 1.96%. Only Jakarta Composite rose 0.33% among major indices.

Indian markets are also showing signs of caution, ahead of RBI’s monetary policy committee meeting.

Shrikant Chouhan, head of equity research (retail), Kotak Securities Ltd, said the negative sentiment continued for the third straight session as the US Fed’s hawkish stance raised concerns of steeper interest rate hikes, while investors also trimmed their positions ahead of the RBI policy; however, most experts believe the MPC may maintain status quo on policy rates.

Non-institutional investors have begun to aggressively book profits in the face of balance sheet reduction by the US Fed and ahead of the RBI policy meeting, said Deepak Jasani, head of retail research at HDFC Securities Ltd.

Markets are expected to remain volatile on Friday as participants would react to the outcome of the MPC meeting. “We expect MPC to maintain the status quo on rates. However, commentary on inflation and growth would be actively tracked," Ajit Mishra, vice-president of research, Religare Broking Ltd.

Meanwhile, Brent was trading at $102.59 a barrel levels on Thursday. Oil prices have come off their peak but have failed to fall below the $100 mark on a closing basis in April. Though some decline in crude prices is positive for the rupee, too, experts said that weak stock markets and a strong dollar index would weigh on the dollar-rupee currency pair. Further, the outcome of the MPC meeting will also have a bearing on the rupee movement.

“Markets would be closely eyeing the RBI policy meeting outcome for further cues that would steer the rupee-dollar exchange rate,’’ said Sugandha Sachdeva, vice-president of commodity and currency research, Religare Broking. Geopolitical worries, elevated inflation, and concerns about downside risks to growth from the rising prospects of bigger interest rate hikes by the US central bank this year remain the key headwinds for the domestic currency, added Sachdeva. The Indian rupee is likely to move in the range of 75.20-76.50 in the near term, Sachdeva said.

Overall, the equity market has shown strong resilience though it faces headwinds from an uncertain global environment and persistent inflation readings, prompting a potential rate increase, said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services Ltd.

ABOUT THE AUTHOR

Ujjval Jauhari

Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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