Sensex, Nifty trim losses as RBI hikes rate for first time in nearly four years; what's ahead

Indian equity benchmarks trimmed their losses in Wednesday's trade after Reserve Bank of India (RBI) raised the benchmark repo rate by 25 basis points (bps) to 5.5 per cent, marking the first rate hike in nearly four years. The repo rate is the interest rate at which the RBI lends money to commercial banks.

The 30-share BSE Sensex pack was down 187.54 points or 0.26 per cent at 72,880.27, while the broader NSE Nifty index declined 91.55 points or 0.40 per cent to 22,684.15 at the last check. With this, Sensex recovered from the day's low of 72,520.73, while Nifty rebounded from 22,578.25 level.

Ajit Mishra, SVP (Research) at Religare Broking, said the 25-bps repo rate hike, along with the shift to a calibrated tightening stance, marked a change in the monetary policy cycle.

"While the hike itself was largely expected, the change in stance is the more important takeaway, indicating that inflation risks are now taking greater precedence. August CPI at 4.82 per cent, elevated crude prices and weather-related risks have clearly narrowed the room for policy accommodation," Mishra also said.

He added that Q1 FY27 GDP growth of 7.8 per cent suggested that the economy could absorb a modest tightening in financial conditions. "We expect the near-term market impact to remain selective, with rate-sensitive pockets facing pressure, while banks with stronger balance sheets and liability franchises should remain relatively better placed," he further said.

Kranthi Bathini, Equity Strategist at WealthMills Securities, also said the markets had been factoring in the 25-bps rate hike.

"Following the RBI's commentary on growth prospects and the growth outlook, the markets have shown some recovery. However, we need to see how crude oil prices play out in the coming weeks, as this remains crucial for the markets," Bathini added.

Ravi Singh, Chief Research Officer at Master Capital Services, said the RBI's decision to raise the repo rate and shift to calibrated tightening signalled stronger growth confidence alongside concerns over persistent inflation.

"The policy is mildly challenging for equities in the short term, though stronger GDP growth and investment prospects could support earnings and sentiment over three to six months," Singh also said.