RBI Hikes Rates, But Dalal Street Shrugs! Sensex, Nifty Recover- What Is Impacting Indian Stock Market?

The 25-basis-point rate hike by RBI should have come as a shocker, but Dalal Street showed a reverse trend. Although still trading in red, Sensex and Nifty recovered from their day's low. When RBI governor Sanjay Malhotra began his policy speech, Sensex clocked in over a 450-point decline as investors awaited the rate decision. Once the elephant was out of the room, investors instead added more money than pulling out. The reason was simple: Indian stock market has already discounted the rate hike decision, and hence Sensex and Nifty did not fall steeper. The rate hike became the main reason to divert bears.

Sensex, Nifty After Rate Hike

Sensex is currently trading at 72,773.12, down by 294.69 points or 0.40%, recovering from its intraday low of 72,520.73 which was touched during the time RBI's governor took the center stage to declare policy outcomes.

Nifty also followed a similar trend. The 50-scrip benchmark is currently trading at 22,648.05, down by 128.05 points or 0.6% after hitting an intraday low of 22,578.25.

Banking stocks emerged among top gainers. Kotak Bank surged 2%, Bajaj Finance, SBI and Axis Bank were among top performers on Sensex. However, the bulls could not overtake bears due to sharp selling in gold, defence, auto and metal stocks.

Titan crashed 4%, Bharat Electronics dropped 2%, Asian Paints plunged 1.5%, M&M and Maruti Suzuki slipped 1.5% and 1%. Ultratech Cement and Tata Steel stocks also declined over 1% each. Majority of them are rate sensitive stocks.

According to Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, A 25 bp hike in policy rates is inevitable and already discounted by the market. What is not discounted is the monetary stance and the central bank's view on the emerging growth-inflation dynamics."

Therefore, the market's response to the policy is largely influenced by the Governor's comments on the emerging scenario.

Nifty Bank traded steady at 55,153.00, while Nifty Financial Services index dipped to trade around 24,898. Nifty Smallcap 100 index surged but Nifty Midcap indices faced selloffs.

Among sectors, Nifty Auto crashed 1.5% to trade around 25,163.10, Nifty Metal followed with same 1.5% decline to trade around 12,411.70, Nifty FMCG and Nifty Realty slipped 1% each. But both Nifty PSU Bank and Nifty Private Bank stocks are trading higher.

RBI Repo Rates Decision

After detailed assessment, RBI has hiked policy repo rate by 25 basis points to 5.50% from previous 5.25%. Further, the standing deposit facility (SDF) rate stands adjusted at 5.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.75 per cent. The MPC also decided to change the stance to calibrated tightening for the first time since October 2018.

RBI hiked rates for the first time since February 2023.

As per RBI, since the last MPC meeting in August 2026, the re-escalation of the conflict in West Asia and the consequent sharp volatility in crude oil prices has kept the global economy in a state of flux. Global growth has remained resilient. Acceleration of inflation in key economies has prompted a shift towards hawkish monetary policy. The US Fed hiked by 25 bps in September. The Fed commentary thereafter along with rate tightening by major systemically important central banks have reinforced expectations of higher global policy rates. Tighter global financial market conditions coupled with fiscal sustainability concerns in major economies are keeping global bond yields at record high levels. With a resolution of the West Asia conflict remaining elusive, significant downside risks to the global outlook remain, including further tightening of global financial conditions, continuing elevated AI-related asset valuations and high public debt.

"The sudden reescalation of the West Asia conflict in September and the consequent hardening and volatility in global crude prices soured global economic sentiments and heightened financial market volatility. Although global growth remains resilient, it is projected to decelerate in 2026 from the previous year," said RBI governor.

The governor further said, "Driven by escalating energy costs and rising food prices, global inflation is projected to increase sharply prompting monetary policy tightening by major central banks. Lingering trade uncertainty, rising bond yields in advanced economies and an appreciating dollar are keeping global financial market sentiments nervous and fragile. Further tightening of global financial conditions, uncertainty about fair valuation of AI stocks, and an elusive resolution of the West Asia conflict pose significant downside risks to the global economic outlook."

As per Arun Poddar, CEO, Choice International, the rate hike reflects a measured response to emerging inflationary pressures amid resilient growth. The change in stance also indicates that the central bank remains watchful of evolving domestic and global risks, particularly movements in crude oil prices and their potential impact on inflation.

While the rate hike could result in some near-term tightening in financial conditions, India's underlying growth fundamentals remain resilient. For equity markets, Poddar said, the focus will now be on the trajectory of inflation, liquidity and the evolving interest-rate environment. A calibrated and data-dependent approach by the RBI will be important in containing inflationary pressures while supporting sustainable economic growth.

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