Monetary Policy Of RBI: Sensex, Nifty Nosedive On Central Bank's Hawkish Remarks; Banking Stocks Drag

Sensex and Nifty 50 extended their downside despite RBI voting unanimously to keep the repo rate unchanged at 6.50%. Traders mood soured after RBI governor Shaktikanta Das said inflation is expected to rise in July and August as well, and hence, the central bank has raised its target. The six-member monetary policy committee turned hawkish amidst rising inflation due to soaring food prices. Sensex dipped over 450 points, while Nifty 50 slipped by over 120 points. Banking stocks were the worst hit!

At the time of writing, Sensex nosedived by 449.58 points or 0.68% to trade at 65,546.23. The 30-scrip benchmark was near its day's low of 65,539.05.

Nifty 50 plummeted by 126.75 points or 0.65 to trade at 19,505.80. This 50-scrip benchmark was also near its day's low of 19,502.80.

Stocks like Asian Paints, Tata Motors, Nestle India, ICICI Bank, Titan, and ITC were top losers with a downside of 1% to 2.5%. However, stocks like Wipro, NTPC, Power Grid, and M&M were top gainers on Sensex with marginal upside.

In the broader market, the BSE Sensex Next 50 was the top laggard by tumbling 139 points, while the BSE 100 shed over 100 points. A marginal drop was also seen in the Midcap index by 56 points, however, a small-cap index which outperformed in the early deals was now trading on a flat note.

In regards to sectoral indices, BSE Bankex shed 420 points to trade at 49,960.54 and Bank Nifty Dipped by 390 points to 44,491.25 --- emerging as top laggards. A broad-based selloff was across indices, with consumer durables, capital goods, auto, and FMCG stocks also witnessing a significant decline.

Ajit Kabi, Banking analyst at LKP Securities said, "RBI has kept the policy rate unchanged at 6.5% in the recent MPC meet. The inflation may not cause worries (excluding CPI). The CPI forecast for FY24 has raised to 5.4% from 5.1% estimated earlier. Moreover, the real GDP growth forecast was pegged at 6.6%. RBI MPC remains resolute in its commitment to align inflation with the 4% target and anchor inflation expectations."

Six-member MPC chaired by RBI governor Shaktikanta Das unanimously voted to keep the repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5%. Accordingly, the standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

MPC also decided to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.

The central bank has turned hawkish due to inflationary pressure that persists amidst soaring vegetable prices.

RBI governor Shaktikanta Das said, "MPC's rationale for these decisions on the policy rate and the stance. Headline inflation, after reaching a low of 4.3 per cent in May 2023, rose in June and is expected to surge during July-August led by vegetable prices. While the vegetable price shock may reverse quickly, possible El Niño weather conditions along with global food prices need to be watched closely against the backdrop of a skewed south-west monsoon so far."

Das added, "These developments warrant a heightened vigil on the evolving inflation trajectory."

Hence, RBI raised the inflation target to 5.4% for FY24 from earlier 5.1%. Also, GDP growth is projected at 6.5% for the financial year.