Markets Face Volatile Trends After RBI Policy Announcement

Mumbai: Benchmark equity indices Sensex and Nifty turned highly volatile trade after the Reserve Bank of India's monetary policy announcement.

The 30-share BSE benchmark Sensex declined 259.67 points to 81,506.19 soon after the announcement. The NSE Nifty also went lower by 87.9 points to 24,620.50.

Markets then faced bouts of volatility trading between highs and lows.

Both the benchmark equity indices later staged a recovery and were trading higher. The 30-share BSE benchmark quoted 130.08 points higher at 81,895.54 and the Nifty traded up by 30.85 points to 24,739.25.

The Reserve Bank of India on Friday decided to keep the policy rate unchanged for the 11th time in a row but sharply lowered the GDP growth forecast to 6.6 per cent for the current fiscal, as against earlier projection of 7.2 per cent.

The Reserve Bank of India (RBI) maintained the status quo on interest rate despite July-September quarter GDP growth falling to 7-quarter low of 5.4 per cent, as against its own projection of 7 per cent.

The rate increase cycle was paused in April last year after six consecutive rate hikes, aggregating to 250 basis points since May 2022.

Announcing the fifth bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 per cent while keeping policy stance unchanged at neutral.

The RBI sharply cut the GDP growth projection to 6.6 per cent from the earlier level of 7.2 per cent, while raising inflation target to 4.8 per cent from the previous projection of 4.5 per cent for the current fiscal.

In a bid to make available more money with banks for lending so as to boost economic activity, the RBI slashed Cash Reserve Ratio to 4 per cent from existing 4.5 per cent. This would lead to release of Rs 1.16 lakh crore to banks and improve their lending capacity.

The CRR is the percentage of a bank's total deposits that it is required to maintain in liquid cash with the RBI.

"Monetary policy has delivered exactly what the economy and markets need in the present context. The governor's emphasis on price stability is appropriate given the elevated level of inflation. The decision to cut the CRR by 50 bps facilitating injection of Rs 1.16 trillion of liquidity into the system will ease the liquidity constraints and more importantly reduce the banks' cost of funds. From the market perspective, this is an excellent policy response. Banking stocks will remain resilient," V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

From the 30-share pack, Infosys, UltraTech Cement, Tata Motors, Hindustan Unilever, Tata Consultancy Services and Asian Paints were among the laggards.

Axis Bank, ITC, Larsen & Toubro, Titan, State Bank of India and Power Grid were among the gainers.

Foreign Institutional Investors (FIIs) bought equities worth Rs 8,539.91 crore on Thursday, according to exchange data.

In Asian markets, Seoul and Tokyo were trading lower while Shanghai and Hong Kong quoted in the green.

US markets ended lower on Thursday.

Global oil benchmark Brent crude dipped 0.04 per cent to USD 72.05 a barrel.

Rallying for the fifth day running, the 30-share BSE benchmark jumped 809.53 points or 1 per cent to settle at 81,765.86 on Thursday. The Nifty surged 240.95 points or 0.98 per cent to 24,708.40.