Nifty, Sensex saw a sharp fall in trade during Friday's ession after the RBI MPC's announcement, on the back of lowered growth projections, and hiked inflation projections. This overpowered the government's introduction of a retrospective tax exemption for Foreign Institutional Investors (FIIs) earning income from government securities
Nifty is trading lower by 0.23% at 23,362.80, while Sensex is trading lower by 0.20% at 74,209, as of 10:45 am.
Sectors are trading mixed. Media is leading gains, trading higher by 2.9%, whereas Metal is lagging by 1.06%, followed by Auto and IT.
The broader market is trading flat, as compared to the benchmarks.
This sharp fall comes after the Reserve Bank of India's Monetary Policy Committee voted unanimously to keep the benchmark interest rate unchanged at 5.25% and maintained the 'neutral' stance. They opted to look past the rupee weakness and assess the fallout from rising global energy costs on inflation and growth.
This overpowered the government's introduction of a retrospective tax exemption for Foreign Institutional Investors (FIIs) earning income from government securities, a policy shift aimed at boosting foreign participation in the country's sovereign debt market. The Income-tax (Amendment) Ordinance, 2026, promulgated on June 5, waives taxes on interest income and any capital gains resulting from the sale, exchange, or transfer of these government securities. Crucially, this tax relief is backdated to take effect from April 1, 2026.
So, what happened?
Growth Projections Slashed
The MPC lowered its FY27 real GDP projection to 6.6%, from 6.9% set in April. The central bank cut its quarterly path across the board, projecting Q1 growth at 6.6% (from 6.8%), Q2 at 6.3% (from 6.7%) and Q3 at 6.5% (from 7%), while pegging Q4 at 6.8%. Its FY26 growth estimate was retained at 7.6%.
Governor Sanjay Malhotra said the outlook "remains clouded" by a sub-normal monsoon forecast and the emergence of El Niño, and warned of "incipient stress" in some segments.
Inflation Projections Hiked
The CPI inflation for FY27 is now projected at 5.1%, which is a 50 bps jump from the central bank's previous forecast. MPC's inflation forecast has an upside bias. The risks of inflation are amplified, according to RBI Governor.
On a quarterly basis, RBI's inflation projection for Q1FY27 is 4.2% against 4%, estimated in the previous policy meeting, while inflation in Q2 of the fiscal is estimated at 5.1% against 4.4%. In Q3, inflation is projected at 5.9% against 5.2% estimated in April. Meanwhile, inflation is forecasted at 5.4% in the fourth quarter of the fiscal.
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