Markets slip as monetary policy stays cautious over inflation
1 min read 08 Jun 2023, 11:00 PM ISTNifty ended the day 0.49% lower at 18634.55, slipping below the 18700-mark. The Sensex too corrected 0.47% to dip below the 63000-mark and end at 62,848.64.
PremiumMumbai: The markets slipped by half a per cent on Thursday, despite the Reserve Bank of India (RBI) maintaining a status quo on policy rates.
RBI also maintained FY24 gross domestic product (GDP) growth forecast at 6.5%, well above consensus expectations. Nevertheless, it is the hawkish pause that has led to fall in markets, said experts. The cautious approach of RBI was reflected in only a 10-bps (basis points) cut in inflation forecast for FY24 to 5.1%, which dampened investor sentiment.
Nifty ended the day 0.49% lower at 18634.55, slipping below the 18700-mark. The Sensex too corrected 0.47% to dip below the 63000-mark and end at 62,848.64.
Vinod Nair, head of research at Geojit Financial Services, said investor sentiment took a downturn following the in-line monetary policy announcement by the RBI, as the market had higher expectations for a more optimistic revision in the inflation outlook, taking into account the recent easing of inflation data.
RBI’s decision to lower inf-lation forecast by only 10 bps suggests a cautious stance due to geopolitical uncertainties, potential impact of El Nino and increase in the minimum support price (MSP), he said.
Profit booking was seen in heavyweights across sectors as Grasim, Kotak Mahindra Bank, Sun Pharma, Tata Consumer, Tech Mahindra slipped by more than 2%, putting pressure on the Nifty.
Axis Bank, HUL, M&M, Tata Motors and BPCL also stood amongst prominent losers. Most sectors traded and ended lower in line with the markets, and realty, IT, media, pharma and FMCG were the top losers. The broader indices too witnessed profit taking and lost in the range of 0.5-0.9%.
The domestic institutions resorted to profit booking, selling a provisional ₹405 crore on Thursday. However foreign portfolio investors continued their buying spree, having bought a provisional ₹212.40 crore and supporting the market on Thursday.
It is not only the inflation forecast that impacted investor sentiments, but the rate cut expectations that have also got delayed. Not only did the RBI governor stress on moving towards the primary target of 4% inflation, surprises in the global arena have also led to fading of a rate cut this calendar year, experts said.
Lakshmi Iyer, chief executive-Investment and Strategy, Kotak Investment Advisors Ltd, said given global macro headwinds still visible, the members did not feel it was appropriate to change their stance.
“It looks like the markets’ wait for rate cuts just got longer, as we saw Canada policy makers announce a surprise rate hike."
Dhiraj Relli, MD & CEO, HDFC Securities expects the first rate cut in February 2024.
The 10-year G-sec yield remained more or less flat and going ahead all eyes will be on what the US Federal Reserve does in terms of its policy rates next week. Kotak’s Iyer said bonds may continue their sideways movement and continue to track global bond yields, specifically US treasuries.
Analysts at Edelweiss Mutual Fund said an optimal banking system liquidity should keep 91-day Treasury-bill yields in a narrow range. At the same time, prospects of no rate cuts in FY24 should keep the benchmark 10-year India government bond yield in a narrow range of 7-7.15% in the medium-term as bullishness gives way to pragmatism.
The 10-year benchmark bond yield has already declined by 22 bps since the last MPC meeting in April and at 7% is priced to perfection, said Edelweiss Mutual Fund.
However, Pankaj Pathak, fund manager, fixed income at Quantum Mutual Fund, expects bond yields to move up from current levels—pricing for uncertainty around the monsoon and inflation impact of higher-than-usual increase in minimum support prices for the kharif crops.
Meanwhile, the rupee ended almost flat, declining just 2 paisa to a dollar at 82.57. Anindya Banerjee, vice-president, currency derivatives and interest rate derivatives at Kotak Securities Ltd, said RBI policy proved to be a non-event.
Volatility has become non-existent and over the near term he expects dollar-rupee to remain between 82.25 and 82.75 on spot.