The domestic equity market finished lower ahead of the RBI MPC meeting outcome, scheduled to be announced on February 7. Find out what market analysts and economists expect ahead of the key announcement
The Dalal Street bears overpowered the bulls on Thursday, ahead of the Reserve Bank of India ‘s (RBI) monetary policy committee (MPC) meeting outcome scheduled to be announced on February 7. The BSE Sensex slipped 213.12 points, or 0.27 per cent, to close at 78,058.16 and Nifty 50 declined 92.95 points, or 0.39 per cent, to finish at 23,603.35.
The selling was deep in the midcap segment, with Nifty Midcap 100 closing 1.26 per cent lower against previous close. Smallcaps too witnessed some selling pressure, with the Nifty Smallcap 100 finishing 0.3 per cent lower. However the Nifty Microcap 250 managed to stay buoyant, ending 0.32 per cent higher.
Rate-sensitive sectors such as banks and financials (Nifty Bank, Nifty Financial Service) closed flat, auto and FMCG (Nifty Auto, nifty FMCG) closed nearly a per cent down each, and realty (Nifty Realty) cracked over 2 per cent. The top sectoral gainers in today’s session were pharma and IT.
“Market attention now focuses on tomorrow's RBI monetary policy committee decision, where expectations are of a 25-basis point repo rate cut along with additional non-rate measures to address domestic liquidity and rupee volatility,” said Devarsh Vakil - Head of Prime Research, HDFC Securities.
“The Nifty Bank index managed marginal gains, reflecting optimism around the anticipated rate cut,” Vakil added.
Vinod Nair, Head of Research, Geojit Financial Services, said, “The benchmark indices experienced a moderate decline as investors awaited the RBI's decision on a potential rate cut amidst the ongoing trade war.”
Nair added, “The broader market remained cautious, in a consolidation phase, despite the government's focus on boosting consumption to cushion lower growth. Meanwhile, the IT and Pharma sectors advanced supported by lower treasury yields after moderating US PMI data, encouraging the Fed to reduce interest rates."
Siddhartha Sanyal, Chief Economist and Head Research, Bandhan Bank expects the RBI to focus on liquidity support for the banking system.
“The upcoming Monetary Policy Committee (MPC) meeting comes against a global backdrop of pressure on most EM currencies amid geopolitical volatility, US exceptionalism and a raging dollar. While the US Fed has taken a pause after 100 basis points rate easing between September and December 2024, several other central banks such as ECB, Bank of England, Bank of Canada and even a number of EM central banks continue to cut rates,” says Sanyal.
“Back home, headline retail (CPI) inflation stay elevated above 5.5% in recent months, reflecting prices of only a handful of non-core items (eg., vegetables, precious metals), while almost all other inflation indicators (core-CPI, core-WPI, WPI, GDP deflator) are markedly low. The subdued growth momentum in recent months and the RBI’s projection of softening of CPI inflation to an average of 4.4% over the next three quarters should also be important factors in the decision making process of the MPC,” Sanyal adds.
“Against that backdrop, it is heartening to see how the RBI has already stepped up the much needed liquidity support in recent weeks deploying a variety of tools such as large quantum of VRRs including long dated VRRs, OMOs, and FX swaps. One feels that a meaningful boost to durable liquidity for the banking system is perhaps the most important policy support at the current juncture to re-invigorate healthy credit growth for the productive sectors of the economy,” says the Chief Economist at Bandhan Bank. “Overall, while rate cut in February is still a close call, the RBI will certainly continue to focus on liquidity support for the banking system leaving no tool off the table.”
Amar Ambani, Executive Director, Yes Securities too is of the opinion that RBI is likely to focus more on liquidity support. He does not anticipate a rate cut in February 7’s meeting outcome.
Ambani says, “We do not anticipate the RBI cutting rates in the upcoming policy meeting. While inflation is showing signs of easing and domestic growth requires support, global conditions remain unfavourable for a rate cut at this stage.”
“With China imposing retaliatory tariffs on the US, the RBI is likely to adopt a wait-and-watch approach regarding further developments in the trade war. Shipping costs are already elevated, and an immediate rate cut could widen the interest rate differential between the US and India, exerting additional pressure on the INR, which has already seen significant depreciation. The inflationary impact of this depreciation is yet to fully materialize. Moreover, the US Federal Reserve is unlikely to cut rates before April/May 2025,” Ambani adds.
Speaking about supporting growth, Ambani says that will only gain traction once INR stability is ensured. “Having said that, on the growth front, the RBI has already provided liquidity support through a CRR cut and OMOs, while the recent Union Budget introduced measures to boost consumption.”
“In the first policy meeting under the new Governor, we expect the RBI to continue addressing the liquidity deficit through additional measures. We see a possibility of a shift in policy stance from the current ‘neutral’ position to ‘accommodative’. This will offer enough reason for the Indian stock market to rejoice, Ambani concludes.
According to Devarsh Vakil of HDFC Securities, despite the recent correction of over 200 points from its peak of 23,807, Nifty's short-term trend remains bullish as it holds above its 11 and 20-day exponential moving averages of 23,446 and 23,428, respectively. “A sustained break above 23,800 could push the index toward the 24050-24100 resistance zone, while the 23400-23450 range serves as key support.”
Rupak De, Senior Technical Analyst at LKP Securities, said, “Nifty slipped lower towards the support level of 23,500 before closing slightly off the day's low. Going forward, the sentiment might depend heavily on the RBI's monetary policy announcement on Friday. Technically, 23,500 may continue to act as a significant support level, but a decisive fall below it could shake the confidence of the bulls. On the higher end, resistance is placed at 23,800 and 24,050.”