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Benchmark indices were trading lower amid volatility on Friday after the Reserve Bank of India announced the expected outcome of its Monetary Policy Committee meeting.
The market opened on a positive note on global cues. However, it turned volatile in the first half even as the RBI kept repo rates remained unchanged, dragged by rate-sensitive financials, realty and pharma.
At 1 pm, the BSE Sensex was trading at 54,306.92, down 185.92 points or 0.34 per cent. It hit an intra-day high of 54,633.58 and a low of 54,256.98.
The Nifty 50 was trading near the day’s low of 16,235.55 at 16,251.55, down 43.05 points or 0.26 per cent. It hit an intra-day high of 16,336.75
Adani Ports, Bharti Airtel, IndusInd Bank, Tata Consumer and IOC were the top gainers on the Nifty 50 while Cipla, Reliance, Shree Cements, Ultratech Cement and Nestle India were the top laggards.
RBI meeting outcome
The Reserve Bank of India’s Monetary Policy Committee has decided to keep key rates unchanged amidst rising inflationary pressures at four per cent. This was in line with market expectations.
Furthermore, the RBI has revised upwards retail inflation projection for FY22 to 5.7 per cent from 5.1 per cent, even as it retained real GDP projection at 9.5 per cent.
Additionally, it is also planning to conduct four variable reverse repo rate (VRRR) auctions in the fortnight, beginning August 13 till September 24, to absorb surplus liquidity from the banking system.
The quantum of VRRR will increase by ₹50,000 crore with each auction. The first VRRR will be for ₹2.50 lakh crore, the second (on August 27) will be for ₹3 lakh crore, the third (on September 9) will be for ₹3.5 lakh crore, and the fourth will be for ₹24 lakh crore.
RBI Governor Shaktikanta Das, however, underscored that the VRRR auctions should not be misread as a reversal of the Central Bank’s accommodative monetary policy stance.
Market has taken note of the rising inflationary pressure as the inflation debate becomes more prominent.
Unmesh Kulkarni – Managing Director Senior Advisor, Julius Baer India said, “While the accommodative stance continues for now, the RBI’s higher inflation projection (compared to market expectations), along with the enhanced VRRR auctions, is likely to put some upward pressure on yields, especially at the short-end.”
“The longer end (gilt) of the yield curve should largely remain range-bound for now, with active intervention by the RBI through a combination of OMO, Operations Twist and G-SAP. Overall, yields have already bottomed out some time back, and it will be interesting to watch RBI’s policy stance towards the end of this calendar year, with further stability in the domestic growth outlook, improvement on the vaccination front and developments around global commodity prices,” added Kulkarni.
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank said, “Expectedly the RBI maintained status quo, attempting to maintain a fine balance between the risks to GDP and inflation. However, we believe that the increased risks to inflation especially as the economic activity is picking up pace has prompted the MPC into taking liquidity normalisation measures ahead of our expectations.”
“We expect additional liquidity normalisation measures like overnight VRRR, increased quantum of higher tenure VRRR in the months ahead before expecting a reverse repo rate hike in December,” Bhardwaj added.
Auto, IT and metals in focus
On the sectoral front, financials, pharma and realty stocks remained under pressure as auto, IT and metals gained.
Nifty Auto was up 0.43 per cent while Nifty Metal was up 0.48 per cent. Nifty IT was up 0.31 per cent.
Meanwhile, Nifty Bank was down 0.15 per cent. Nifty Private Bank was down 0.04 per cent while Nifty PSU Bank was down 0.35 per cent. Nifty Financial Services was trading 0.26 per cent lower. Nifty Pharma was down 0.54 per cent while Nifty Realty was down 0.41 per cent.
Broader indices
Broader indices were trading flat.
Nifty Midcap 50 was up 0.01 per cent while Nifty Smallcap 50 was down 0.01 per cent.
The S&P BSE Midcap, however, was up 0.29 per cent while the S&P BSE Smallcap was up 0.41 per cent.
The volatility index was at 12.77, down 0.79 per cent.
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