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RBI shocker sends market into a tizzy; benchmark indices plunge 2.3%

The bond markets also saw a sell-off, and the yield on the 10-year government bond rose to 7.37 per cent, hitting a three-year high

Topics
stock markets | benchmark indices | RBI Policy

Sundar Sethuraman  |  Mumbai 

bear market, stocks, sensex, nifty, loss, growth, crash, index
The Sensex fell 1,307 points, or 2.3 per cent, to end the session at 55,669, while the Nifty50 index declined 391 points, or 2.3 per cent, to close at 16,677

India’s posted their biggest decline in two months as financial heavyweights tanked after the Reserve Bank of India (RBI) hiked the repo rate by 40 basis points in a surprise move on Wednesday. Nervousness ahead of the US Federal Reserve’s monetary policy announcement added to investors’ worries.

graphThe Sensex fell 1,307 points, or 2.3 per cent, to end the session at 55,669, while the Nifty50 index declined 391 points, or 2.3 per cent, to close at 16,677. This was the biggest fall for both the indices since March 7.

The bond also saw a sell-off, and the yield on the 10-year government bond rose to 7.37 per cent, hitting a three-year high.

“The surprise was not just the 40-basis point hike, but the 50-basis point hike in CRR (cash reserve ratio). I don't think were expecting that. Everyone was expecting a hike in the repo rate, not CRR. It will tighten liquidity,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

Foreign portfolio investors (FPIs) were net sellers on Wednesday as they sold domestic equities worth Rs 3,288 crore, according to provisional data from the exchanges. So far this year, have sold equities worth Rs 1.29 trillion.

Indian were a bit jittery during the day as investors braced for the monetary policy decision of the Federal Reserve. The US central bank is expected to raise rates by 50 basis points and reveal its plans regarding the reduction of its balance sheet. Analysts said more than the rate hikes, the comments by Federal Reserve Chairman Jerome Powell would be keenly tracked to see whether any surprise announcements could raise concerns about a slowdown in the US economy. Further, analysts said markets had priced a 50-basis point cut, but a bigger cut could send them into a tailspin.

graph

“Markets are hoping that it is not going to be too aggressive. We know there is still more to come after this hike,” said Holland.

On Tuesday, European Central Bank Executive Board Member Isabel Schnabel said a rate hike could come as early as July. Schnabel said it was high time policymakers took steps to contain inflation. The European Union’s plan to ban Russian crude oil over the next six months and refined fuels by the end of the year added to investor concerns.

The war in Ukraine and the US and its allies’ efforts to isolate Russia have led to a spike in commodity prices.

Ajit Mishra, VP of research, Religare Broking, said domestic factors like earnings and macroeconomic data would further add to the choppiness in the coming days. “The real test would be to handle the volatility post the US Fed meeting. It’s prudent to limit positions and continue with a stock-specific trading approach,” he said.

The broader markets were weak, with 2,645 stocks declining and 734 stocks advancing on the BSE. Barring three, all Sensex stocks fell.

Reliance Industries fell 3.14 per cent, while HDFC Bank and ICICI Bank fell 3.34 per cent and 2.3 per cent, respectively. Consumer Durables stocks fell the most and its sectoral index fell 3.8 per cent on the BSE.

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First Published: Thu, May 05 2022. 01:20 IST
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