Markets witnessed a dip of 1% post RBI maintained its interest rates

The Reserve Bank of India maintained interest rates constant for the sixth consecutive week on Thursday, sending mixed signals to the Indian stock market and raising the possibility that rates won’t be slashed anytime soon.

The RBI predicted that average retail price inflation would drop to 4.5% for the next fiscal year from the current forecast of 5.4%, but rate-sensitive industries like banks and fast-moving consumer goods (FMCG) were rattled by the governor’s statement that a 4% target remains unmet, which caused the benchmarks to fall.

The Sensex fell 1% to 71428.43, while the Nifty fell 0.97% to 21717.95, just above the 20-day simple moving average of 21691.57.

Because financials account for 33% of the index’s weight, a decline in the Bank Nifty puts negative pressure on the Nifty. The weighting of the FMCG index is 8.78%. The three banks that had the largest negative impact on the Nifty were Axis Bank (down 2.55%), ICICI Bank (down 3.34%), and Kotak Bank (down 3.53%). The largest laggards in the industry were FMCG giants Nestle with a 3.02% drop and ITC with a 4.04% loss.

“The markets were disappointed with no dovish tinge to the policy or cut in cash reserve ratio to ease the liquidity in the banking system,” stated Andrew Holland, CEO at Avendus Capital Public Markets Alternate Strategies.

“We might see rate cuts at or post the August policy, which means banks’ net interest margins could continue to remain under pressure. Apart from that, rate-sensitives could face pressure in the near term, given possible FPI outflows from such sectors. The market will remain under pressure in the near-term in the absence of catalysts back home, but might rally ahead of the general elections.”

“However, the index shows a one-day up-day-down phenomenon over the last few weeks. Nifty could now face resistance at 22053 while 21448 could offer support in the near term.”

The policy, according to Nilesh Shah, MD of Kotak Mahindra AMC, was in keeping with market expectations. According to Shah, the markets were correcting due to high valuations in several industries and a “distribution from slow-moving to fast-moving stocks” such as PSU, defense, and railway.