RBI’s rate hike takes market by surprise, investors wealth dips ₹6.27 lakh cr

Market


A rate hike was much-needed case for taming the mounting inflation and maintaining liquidity stability! 

RBI has been expected to hike repo rates to tackle soaring inflation which has reached well above the comfort zone of the central bank. With this, RBI also continues to move in the direction of ensuring sufficient liquidity. RBI is seen to be tilting towards a hawkish stance amidst inflationary pressure like the other central banks globally. 

BSE Sensex closed at 55,669.03 down by 1306.96 points or 2.29%. The benchmark had touched an intraday low of 55,501.60.

There was massive selling pressure among heavyweight stocks. Bajaj Finance, Bajaj Finserv, Titan, IndusInd Bank, HDFC Bank, Dr. Reddy’s Lab, and Maruti Suzuki bearing the brunt with a downside of 3-4.5%. Reliance Industries the most valued company in terms of market cap, also plunged by over 3%.

However, power stocks namely Power Grid and NTPC defied the bearish tone of broader markets and outperformed.

A broad-based selloff was witnessed across sectoral indices. Consumer durables, metals, banking, auto, and pharma stocks were the worst hit.

The market cap of BSE slipped to 2,59,60,852.44 crore on Wednesday compared to the previous day’s valuation of 2,65,88,212.16 crore.

With that, investors’ wealth on BSE dropped by 6,27,359.72 crore in a single day.

Among the top 10 most valued companies on BSE, RIL held its top position with a market cap of 18,21,904.37 crore followed by TCS at 12,74,246.35 crore, HDFC Bank at 7,52,513.31 crore, Infosys at 6,46,147.16 crore, and Hindustan Unilever at 5,09,802.56 crore.

Other companies in the top 10 market capitalisation were ICICI Bank with a valuation of 5,03,125.11 crore, State Bank of India at 4,28,024.37 crore, Adani Green Energy at 4,17,975 crore, HDFC at 3,99,980.44 crore, and Bharti Airtel at 3,96,853.89 crore.

NSE Nifty 50 settled at 16,677.60 lower by 391.50 points or 2.29%. The benchmark has touched an intraday low of 16,623.95.

RBI has increased the policy repo rate under the liquidity adjustment facility (LAF) by 40 basis points to 4.40% with immediate effect. Further, the standing deposit facility (SDF) rate stands adjusted to 4.15%, and the marginal standing facility (MSF) rate and the Bank Rate to 4.65%.

Despite hiking policy rates, RBI decided to retain an accommodative stance while focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.

RBI’s decision is intending to achieve a medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2% while supporting growth.

Also, the rate hike came as a surprise during the launch of the mega IPO of Life Insurance Corporation of India (LIC).

The nearly 21,000 crore LIC IPO which is the biggest of all time on the market, opened today. On Day 1, the IPO received cumulative bids of 10,52,64,180 equity shares against its offered size of 16,20,78,067 equity shares – subscribing to 65% of the total issue.

Unmesh Kulkarni, Managing Director Senior Advisor, Julius Baer India said, “The markets have obviously been taken by surprise, and the 10-year benchmark g-sec yield jumped intra-day to 7.40%. Given the enhanced government borrowing calendar this year, RBI has a tough job at hand, to manage the market’s expectations of yields while seeing the weekly auctions through in a non-disruptive manner.”

Vinod Nair, Head of Research at Geojit Financial Services said, “Although the rate hike was anticipated, the sudden announcement of a 40bps increase in repo rate along with a 50bps increase in CRR in response to the rising inflation spooked markets leading to a heavy selloff. Global markets are also trading cautiously ahead of the upcoming Fed meeting, as an increase of more than 50 bps will extend the current consolidation phase”

“Wednesday’s decision shows RBI’s commitment to tackle inflation, which has been ruling high and at the higher end of RBI’s comfort zone. Also, given the expectations of a 50 bps rate hike by the US Fed, RBI possibly wants to pre-empt the Fed action, in order to ensure stability in the currency and capital flows,” Kulkarni added, “The CRR hike is a further step in RBI’s liquidity normalisation drive, as it attempts to tame the persistent high inflation.”

On the accomodative stance, Kulkarni added that “the RBI MPC surprisingly retained its accommodative stance, even after Wednesday’s repo rate hike and CRR hike. While RBI is committed to ensuring sufficient liquidity, the policy stance looks to have already changed to neutral-to-hawkish, which it may officially announce in the June MPC meet.”

The RBI repo rate hike will have an impact on banks’ lending and deposit rates. The interest rate change in home loans, car loans, and personal loans will be keenly watched ahead. Banks have already started to increase the MCLR benchmark way ahead of the RBI’s sudden rate hike.

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