Nifty Bank in Focus Ahead of RBI MPC Outcome: The Nifty Bank index was trading under pressure ahead of the Reserve Bank of India's (RBI) monetary policy decision on Wednesday, with the index hitting an intraday low of 54,636.20, against its previous close of 55,128.40, translating into an intraday fall of around 0.89% from the previous close.
Among the index constituents, Union Bank of India witnessed the sharpest fall at the time of writing this report, declining as much as 1.72%. AU Small Finance Bank fell as much as 1.50%, while IndusInd Bank declined 1.47%. IDFC First Bank slipped 1.23%, while Punjab National Bank (PNB) fell 1.22%.
Other major banking stocks were also under pressure, with Canara Bank down as much as 1.11%, Bank of Baroda 1.10%, Axis Bank 0.99%, Federal Bank 0.92%, State Bank of India (SBI) 0.90% and HDFC Bank 0.87%. Yes Bank fell 0.72%, while ICICI Bank declined 0.54% and Kotak Mahindra Bank 0.35%.
Why Is Nifty Bank Trading In Red Ahead Of RBI MPC?
The RBI is widely expected to raise the repo rate by 25 basis points (bps) to 5.50% on Wednesday, from the current level of 5.25%. This would be the first rate hike since February 2023.
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While the expected 25 bps hike is largely factored into market expectations, investors are closely watching the RBI's monetary policy stance, inflation outlook and guidance on the future course of interest rates.
Domestic inflation remains above the RBI's 4% target, while elevated crude oil prices pose an additional external risk. Higher crude prices could put further pressure on India's inflation trajectory and widen the current account deficit.
This has kept investors cautious toward rate-sensitive sectors, including banking stocks, ahead of the policy announcement.
Rate Hike Already Discounted, Focus Shifts To RBI's Stance
According to V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, the key focus for markets will be the monetary stance and the message from the RBI Governor.
He said a 25 bps hike is inevitable and already discounted by the market, making the central bank's commentary on the emerging growth-inflation dynamics particularly important.
Vijayakumar said the market's response to the policy decision would therefore be influenced by the Governor's comments on the evolving economic scenario rather than simply the rate action.
India-US Rate Differential, Rupee Also In Focus
Vijayakumar also highlighted the fact that the interest-rate differential between India and the US is at very low levels, which he described as unsustainable.
He said a rate hike to pre-empt further capital flight has become unavoidable in the context of rising US yields and a rising dollar.
According to him, stabilisation of the rupee will also be among the RBI Governor's considerations, even though the central bank's primary focus will remain on the growth-inflation dynamics.
What To Watch After RBI MPC
With the expected 25 bps rate hike already largely priced in, the immediate market reaction could depend more on the RBI's assessment of inflation, growth, crude oil prices, currency conditions and the future monetary policy path.
For the banking index, the 54,693 intraday low remains an important level, while the performance of large constituents such as HDFC Bank, ICICI Bank, SBI, Axis Bank and Kotak Mahindra Bank, along with sharper-moving PSU banks, will determine the broader Nifty Bank trend after the policy announcement.
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