Home / News / India /  Caution sets in the markets ahead of RBI policy meet

NEW DELHI : India’s benchmark indices on Friday pared intraday gains to end in the red. The Sensex fell 664 points from the day’s high to close at 55,769, down 0.09%, or 49 points, while the Nifty was down 0.26% to close at 16,584. However, Sensex and Nifty made weekly gains of 1.61% and 1.42%, respectively.

While positive global sentiments, easing of covid restrictions in China and the expectations of a normal monsoon in India triggered the rally earlier this week, investors seemed to have turned cautious ahead of Reserve Bank of India’s policy meet this weekend, and the US Fed’s meeting in mid-June.

Vinod Nair, head research at Geojit Financial Services, said a late sell-off indicates the lack of confidence in the domestic market driven by the concerns over the central banks policy stance. While RBI is expected to increase rates by 25-35 basis points, the Fed may announce a 50 basis point hike. “However, the outlook and changes in economic growth and inflation will determine the market trend," added Nair.

According to analysts, if the central banks announce stringent policy tightening measures, market sentiments can turn bearish.

Asian shares were mixed on Friday amid rising energy prices and the easing of covid -led restrictions in China. Taiwan TAIEX and Hang Seng ended 0.73-1.0% lower, while Jakarta Composite Shanghai Composite and Nikkei held on to gains of 0.42-1.27%.

“Investors await the key jobs reports that will help gauge the strength of the US economy and provide hints on the pace of the Fed’s policy tightening in the second half of the year," Deepak Jasani, head, retail research HDFC Securities Ltd, said.

Till 2 June , foreign portfolio investors sold Indian equities worth 1,70,078 crore. Provisional data for Friday showed that FPIs were net seller of 3,770.51 worth of equities. While FPIs may go slow, selling is likely to continue considering factors such as the Fed rate hike and concerns of economic slowdown.

“Amid heightened volatility, traders are becoming selective and want to avoid getting into awkward positions, and investors played it safe ahead of the weekend and booked profit in select auto, metal and power stocks," Amol Athawale, deputy vice president, technical research, Kotak Securities Ltd, said.

According to Neeraj Chadawar, head, quantitative equity research, Axis Securities, market performance is expected to remain range-bound in near-term, and a clear trend is likely to emerge if volatility stays at lower levels for a longer time.

Rate action and liquidity tightening measures may adversely affect economic growth which is slowing due to high inflation and a fall in consumption. Joseph Thomas, head, research, Emkay Wealth Management, said the situation has been further accentuated by higher oil prices and expectations of a fall in prices in the near term looking bleak. “These factors will continue to occupy the market’s mind as we progress further into June," Joseph added..

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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