Stocks correct from highs, bond yields down a tad after RBI repo rate hike

MUMBAI: Stock markets corrected and bond yields fell after the RBI’s Monetary Policy Committee (MPC) raised the repo rate by an anticipated 50 basis points (bps) on Wednesday. Rupee tumbled marginally to 77.73 as foreign institutional investors (FIIs) continued selling equity.

FIIs sold a provisional Rs 2,484 crore worth of Indian shares as the RBI raised inflation forecast and changed its policy stance to withdrawal of accommodation from remaining accommodative. Higher input costs squeeze margins of companies, which in turn impacts their share price.

Nifty and Sensex closed down 0.4% each to 16,356.25 and 54,892.49, respectively, in the volatile session.

Nifty fell nearly 1% to its closing rate from the day’s high of 16,514. Nifty losers included Bharti Airtel, ITC, Reliance Industries, Asian Paints and Axis Bank, which fell between 1% and 3.3%. Gainers included SBI and Bajaj Finance.

FIIs have been on a sustained selling spree since January as advanced economies front-loaded rate hikes earlier than RBI, reducing their risk-free rate of return by borrowing cheap and investing in Indian equities.  FIIs have sold shares worth $23.3 bn in the calendar year to date, NSDL data shows.

The fall of indices would have been steeper had domestic funds not stepped in and purchased shares worth a provisional Rs 1,904 crore. The 10-year benchmark government bond yield last traded 3 basis points lower at 7.49% as traders paused bond sales after the MPC hike met market expectations. The yield could continue correcting in the near term to 7.35%, said a bond dealer. 

The rupee closed down 2 paise to dollar at a record closing low of 77.73 on FII selling and hike in crude prices. “Going forward, we might see rupee spot weakening towards new lows amid weak fundamentals,” said Jigar Trivedi - Research Analyst- Commodities & Currencies, Anand Rathi Shares & Stock Brokers.

FII selling continues as RBI raises rate

Foreign institutional investors (FIIs) have been on a sustained selling spree since January as advanced economies front-loaded rate hikes earlier than RBI, reducing their risk-free rate of return by borrowing cheap and investing in Indian equities. FIIs have sold shares worth $23.3 bn in the calendar year to date, NSDL data shows.