Equity investors are worried post RBI's rate hike decision on Wednesday; here’s why
Following the announcement, the market capitalisation of BSE-listed tanked to Rs 259 lakh crore in the afternoon trade on Wednesday against Rs 265.88 lakh crore on May 2.
- May 4, 2022,
- Updated May 4, 2022 3:41 PM IST
Equity investors lost more than Rs 6 lakh crore after the Reserve Bank of India’s (RBI) monetary policy committee in an unscheduled meeting decided to hike the repo rate by 40 basis points. Following the announcement, the market capitalisation of BSE-listed tanked to Rs 259 lakh crore in the afternoon trade on Wednesday against Rs 265.88 lakh crore on May 2. Markets were closed on May 3 on account of a public holiday. Market analysts believe that the rate hike was much-anticipated factoring rise in food and general inflation. However, the surprising move may slowdown liquidity in the overall economy.
The 30-share index Sensex traded 1,302 points down at 55,673, while the 50-share Nifty index plummeted 417 points to 16,651. Commenting on the rate hike, Ajit Kabi, banking analyst, LKP Securities said, “The rate hike is likely to shrink liquidity in the economy overall. As per as the banks are concerned the cost of funds is likely to increase so does the cost of deposits. It may translate into net interest margins pressure. However, a quick increase in MCLR may control the NIMs squeeze.”
All the sectors on the BSE traded in the red at around 3 pm (IST). With a fall of nearly 4 per cent, Consumer Durables was among the top loser on the exchange. It was followed by Realty (down 3.41 per cent), Consumer Discretionary (down 2.99 per cent), Healthcare (down 2.83 per cent) and Bankex (down 2.28 per cent).
VK Vijayakumar, chief investment strategist, Geojit Financial Services added that the MPC's decision to raise the repo rate is a surprise since it came on the LIC IPO opening date. MPC’s proactive move is justified from the perspective of inflation management, but the timing leaves a lot to be desired.
The headline CPI inflation has already moved up to 6.95 per cent in March 2022 and there are expectations that it may rise further over the next 2-3 months.
“The 1,000 point crash in Sensex has soured the sentiments on the opening day of India’s largest IPO. The 10-year bond yield has spiked to above 7.39 per cent indicating an imminent rise in the cost of funds,” Vijayakumar added.
Sujan Hajra, chief economist and executive director, Anand Rathi Shares & Stock Brokers said, “The simultaneous 50 basis points CRR hike would tighten liquidity (By Rs 90,000 crore immediately), which would improve the transmission of a rate hike in credit and debt market. We expect an immediate increase in the money market rate, some transmission in the long-term bond market and also the credit market (both lending and deposit rates). The impact on the equity market is likely to be negative in the short-term.”
Also read: Repo rate hiked by 40 bps: 5 reasons why RBI Guv Das shocked the market
Also read: Wednesday Washout: Sensex crashes over 1400 pts! Is there more pain ahead?
Also read: Sensex crashes over 1400 points as RBI hikes repo rate by 40 bps to 4.40%
Equity investors lost more than Rs 6 lakh crore after the Reserve Bank of India’s (RBI) monetary policy committee in an unscheduled meeting decided to hike the repo rate by 40 basis points. Following the announcement, the market capitalisation of BSE-listed tanked to Rs 259 lakh crore in the afternoon trade on Wednesday against Rs 265.88 lakh crore on May 2. Markets were closed on May 3 on account of a public holiday. Market analysts believe that the rate hike was much-anticipated factoring rise in food and general inflation. However, the surprising move may slowdown liquidity in the overall economy.
The 30-share index Sensex traded 1,302 points down at 55,673, while the 50-share Nifty index plummeted 417 points to 16,651. Commenting on the rate hike, Ajit Kabi, banking analyst, LKP Securities said, “The rate hike is likely to shrink liquidity in the economy overall. As per as the banks are concerned the cost of funds is likely to increase so does the cost of deposits. It may translate into net interest margins pressure. However, a quick increase in MCLR may control the NIMs squeeze.”
All the sectors on the BSE traded in the red at around 3 pm (IST). With a fall of nearly 4 per cent, Consumer Durables was among the top loser on the exchange. It was followed by Realty (down 3.41 per cent), Consumer Discretionary (down 2.99 per cent), Healthcare (down 2.83 per cent) and Bankex (down 2.28 per cent).
VK Vijayakumar, chief investment strategist, Geojit Financial Services added that the MPC's decision to raise the repo rate is a surprise since it came on the LIC IPO opening date. MPC’s proactive move is justified from the perspective of inflation management, but the timing leaves a lot to be desired.
The headline CPI inflation has already moved up to 6.95 per cent in March 2022 and there are expectations that it may rise further over the next 2-3 months.
“The 1,000 point crash in Sensex has soured the sentiments on the opening day of India’s largest IPO. The 10-year bond yield has spiked to above 7.39 per cent indicating an imminent rise in the cost of funds,” Vijayakumar added.
Sujan Hajra, chief economist and executive director, Anand Rathi Shares & Stock Brokers said, “The simultaneous 50 basis points CRR hike would tighten liquidity (By Rs 90,000 crore immediately), which would improve the transmission of a rate hike in credit and debt market. We expect an immediate increase in the money market rate, some transmission in the long-term bond market and also the credit market (both lending and deposit rates). The impact on the equity market is likely to be negative in the short-term.”
Also read: Repo rate hiked by 40 bps: 5 reasons why RBI Guv Das shocked the market
Also read: Wednesday Washout: Sensex crashes over 1400 pts! Is there more pain ahead?
Also read: Sensex crashes over 1400 points as RBI hikes repo rate by 40 bps to 4.40%