Trading in Indian equities is projected to start Wednesday at a softer level, with attention centered on the Reserve Bank of India’s upcoming monetary policy announcement. Analysts anticipate the RBI will lift its key lending rate by 25 basis points, the first adjustment since February 2023.
The RBI is acting amid continued inflationary pressures linked to the war in the Middle East. GIFT Nifty futures stood at 22,704.5 in early trade, suggesting a weaker opening for the Nifty 50, which closed at 22,776.1 in the previous session.
RBI’s Rate Hike and Market Impact
The RBI is expected to increase rates by 25 basis points, with investors closely monitoring Governor Sanjay Malhotra’s comments on inflation risks and future policy direction. Analysts at Goldman Sachs, led by Santanu Sengupta, suggest the Monetary Policy Committee may shift its stance from neutral to calibrated tightening or withdrawal of accommodation.
Since the RBI’s last rate decision on August 5, the Nifty 50 has fallen by 7.5%, pressured by higher oil prices, rising US bond yields, and foreign outflows from Indian equities.
Sector-Specific Implications
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, believes a 25-basis-point hike is likely, given rising inflation pressures and bond yields. He notes that higher floating rates could benefit banks by improving their margins.
JM Financial warns that a rate increase may pressure non-bank lenders, as funding costs could rise faster than loan yields. Fixed-rate vehicle finance and microfinance lenders might face greater challenges, while floating-rate housing finance companies could be better positioned.
The RBI’s assessment of inflation and economic growth will likely influence the earnings outlook for real estate, consumer companies, and other interest-rate-sensitive sectors.
Global Market Context and Stock Watch
Brent crude rose approximately 1% to $101.5 per barrel, influenced by storm-related risks to US oil output and Houthi attacks on Saudi Arabia. Asian markets remained largely muted after US equities gained in the previous session, with the S&P 500 and Nasdaq reaching record highs.
Among notable stocks, Titan Company reported 25% year-on-year growth in consumer business sales for the September quarter, driven by demand for jewelry, watches, and eyewear. Utkarsh Small Finance Bank saw a 6.6% year-on-year increase in total deposits and a 54.9% rise in total disbursements in the second quarter.
The Asset Reconstruction Company reported a 54.2% year-on-year increase in consolidated net profit for the June quarter, while Mphasis secured a €35.4 million contract from Social Security Scotland.
