The 25 basis point hike in the repo rate to 6.5 per cent by the central bank impacted both equity and the debt markets, triggering volatility in the benchmark indices and the bond prices. Market benchmark Sensex after rising to an all-time high of 37,711.87 during the day, saw a fall by 190 points from the intra-day high to 37,521.62 at close of trade.

The Sensex finally closed more than 80 points down as the last hour of trade saw profit taking in banks, automobile and housing finance majors due to RBI rate hike. NSE’s Nifty-50 index closed at 11,346.20 down by 10.30 points. NSE’s Nifty Bank index fell 0.60 per cent while BSE Bankex fell 0.55 per cent.

The top bank and housing finance losers on BSE included ICICI Bank(-1.61 per cent), HDFC Bank(-1.09 per cent), Axis Bank(-0.95 per cent), Yes Bank(-0.52 per cent). There were some gainers as well – PNB (2.94 per cent), SBI (0.58 per cent), IndusInd Bank (0.45 per cent) and Kotak Bank (0.39 per cent).

Losers among housing finance companies were HDFC (-1.24 per cent), LIC Housing Finance (-1.85 per cent), DHFL (-1.48 per cent) and Indiabulls Housing Finance (-1.11 per cent). Among other rate sensitive sectoral indices BSE auto index fell 0.77 per cent and Capital Goods index fell 0.09 per cent while BSE Realty index rose 0.21 per cent.

Sameet Chavan, chief analyst-Technical and Derivatives, Angel Broking said, “The benchmark index consolidated for the major part of the day; but volatility just kicked in once the RBI came out of its verdict on bi-monthly monetary policy. The market stabilised after some wild swings and the index eventually managed to close with negligible loss.”

There was a rally in the bond market as the 10 year bond yield rallied 14 basis points (bps) during the day to a high of 7.84 per cent.

Arvind Chari, head – Fixed Income & Alternatives, Quantum Advisors said the rate hike by RBI was on expected line and the bond market had already priced in 25 basis point repo rate hike.

“For now, the 25 bps hike was broadly in line with market expectations and the continuation of ‘neutral’ stance seems to have comforted the bond markets. The 10 year government bond yield ended the day at 7.7 per cent down 7 bps for the day but having retraced from 7.84 per cent which it touched immediately post the rate hike announcement,” Chari said.

“With RBI forecasting June 2019 inflation at 5 per cent, the current repo rate at 6.5 per cent implies real rate of 1.5 per cent. This is within RBI’s stated desire to keep Real rates between 1.25 per cent-1.75 per cent,” Chari said.