Bank stocks rebound as RBI hikes repo rate; Sensex, Nifty trim early losses
RBI’s first rate hike in nearly four years lifts banking stocks, helping Sensex and Nifty recover from sharp early losses despite inflation concerns
Mumbai, Oct 7 (PTI) Benchmark indices Sensex and Nifty trimmed most of their early losses on Wednesday, amid a rebound in bank stocks after the Reserve Bank of India raised its benchmark interest rate by 25 basis points to 5.50 per cent, its first increase in nearly four years.
Earlier in the day, the 30-share BSE Sensex fell 547.08 points, or 0.74 per cent, to 72,520.73. The 50-share NSE Nifty declined 197.85 points, or 0.86 per cent, to 22,578.25.
Later, both the benchmark indices trimmed most of their early losses. The BSE benchmark traded 154.23 points lower at 72,929.75, and the Nifty quoted 87.40 points down at 22,687.35.
Among the 30 Sensex firms, Titan, Asian Paints, Bharat Electronics, Maruti, Hindustan Unilever and Mahindra & Mahindra were among the major laggards.
Bharti Airtel, Kotak Mahindra Bank, Bajaj Finance, ICICI Bank, Axis Bank and State Bank of India were the gainers.
The Reserve Bank of India raised its benchmark interest rate by 25 basis points to 5.50 per cent on Wednesday, its first increase in nearly four years, and signalled that further hikes could follow as rising inflation and a weakening currency prompt a policy pivot.
The six-member Monetary Policy Committee voted unanimously to raise the repo rate, the first such increase since Governor Sanjay Malhotra took office in December 2024. While the move was widely expected, the central bank sprang a surprise in shifting its stance towards "calibrated tightening", effectively ruling out a rate cut in the near term.
"Rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook," Malhotra said announcing the MPC decisions.
Brent crude, the global oil benchmark, traded 0.98 per cent higher at USD 101.5 per barrel.
"The RBI’s 25 basis point hike was, in our assessment, a touch-and-go decision shaped by extraordinary circumstances. Resilient domestic growth provided room to act, while rising food prices, elevated global crude prices, higher global and domestic bond yields and rupee depreciation weighed heavily in favour of tightening. This does not necessarily herald a series of further hikes: even the calibrated tightening stance leaves room for a pause, depending on how inflation and external pressures evolve.
"With the move fully priced in, we do not expect a negative financial-market impact. Indeed, the RBI’s willingness to take a difficult decision should reassure markets about its commitment to price stability and strengthen confidence in its management of an unusually challenging environment," Sujan Hajra, Chief Economist & Executive Director, Anand Rathi group, said.
Foreign Institutional Investors (FIIs) offloaded equities worth Rs 2,961.30 crore on Tuesday, according to exchange data.
In Asian markets, South Korea's Kospi, Japan's Nikkei 225 index and Hang Seng index quoted lower.
US markets ended higher on Tuesday.
On Tuesday, the Sensex jumped 685.34 points, or 0.95 per cent, to settle at 73,067.81. The Nifty climbed 220.35 points, or 0.98 per cent, to end at 22,776.10. PTI