Mr. Mitul Shah - Head of Research at Reliance Securities.
Indian equities closed lower after RBI's interest rate decision. The Nifty fell 0.4%, while Nifty Mid Cap and Nifty Small Cap were down about 0.5% and 0.6% respectively. Majority of indices ended in red except Nifty FMCG (+1%) and Nifty PSU Bank (+0.3%). Nifty Media was the primary laggard which fell 1.5%, followed by Nifty Reality and Nifty Consumer Durables which were down 1.2% and 1.1% respectively. Meanwhile, the RBI raised interest rates by 35bps to 6.25% in order to continue its efforts to tame inflation. It has now hiked the repo rate for the fifth time this year and by an overall 225bps since May '22. The central bank expects inflation to stay above 4% in the next 12 months. Moreover, RBI has cut the GDP forecast to 6.8% from an earlier 7%, for FY23.
The U.S. equities declined as market weighed fears on interest rates hike. The S&P 500 dropped 2%, Dow Jones fell 1.5% while Nasdaq slid 2.5%. In bond markets, the yield on the U.S. 10-year Treasury note fell to 3.513% from 3.598% on Monday. The stock market rallied throughout November on signs that the Fed was winning the fight against inflation, which lifted hopes that interest-rate increases would slow.
The global economy continues to face inflationary pressures though the recent commodity and food price softening may boost demand going ahead. RBI's rate-panel increased repo rates by 35bps in its meeting as expected. The FED may also raise rates by another 50bps on Dec. 14. The movement of rupee against the dollar, FII flow and crude oil prices will affect markets in the near term. The endless Russia-Ukraine crisis and massive protests in China against the Zero-COVID policy remain the major global concerns.