Sensex, Nifty50 close lower after RBI says inflation battle not over – realty, IT, auto stocks drag

• While the 30-stock Sensex closed 215 points lower at 62,410, the 50-stock Nifty50 closed 82 points lower at 18,560.
• Amongst the key indices dragging the markets down were realty, IT, auto, and consumer durables.
• While the latest hike today was lower at 35 bps, compared to the previous three 50 bps hikes, RBI governor Shaktikanta Das’ statements were slightly hawkish, analysts said.
• Major real estate companies listed on the stock exchanges registered a decline in the range of 0.4-5.4%.

India’s benchmark indices on Wednesday ended on a negative note after the Reserve Bank of India’s commentary was seen as being slightly hawkish, indicating another rate hike was in the offing.

Announcing a 35-basis point hike in a key interest rate, RBI Governor Shaktikanta Das reiterated that the fight against inflation was not over and that the central bank was watching it keenly - with “Arjuna’s eye”.

“The markets sold off as there was expectation of a dovish stance and some indication of an end of the tightening cycle. 10Y G-SEC yields which touched a low of 7.2% prior to policy announcement, touched a high of 7.31% post policy, as market expectations were belied. Markets were further hoping for a change in stance, which also did not happen, added to selling pressure,” said Avnish Jain, head fixed income at Canara Robeco AMC.

While the 30-stock Sensex closed 215 points lower at 62,410, the 50-stock Nifty50 closed 82 points lower at 18,560.

Amongst the key indices dragging the markets down were realty, IT, auto, and consumer durables. While realty declined 1.19%, IT and auto followed with a 0.8% fall. However, the FMCG index surged today with a 0.96% gain, followed by the PSU bank index, which added 0.26% to its value.

RBI has so far hiked interest rates five times this year, with a cumulative hike of 225 basis points. While the latest hike today was lower at 35 bps, compared to the previous three 50 bps hikes, RBI governor Shaktikanta Das’ statements were slightly hawkish, analysts said.

“In our view, today’s policy is somewhat more hawkish than expected with sticky and elevated core inflation being an additional focus,” said Garima Kapoor, economist, Elara Capital.

Analysts now expect a 25 bps hike in February. RBI left the inflation target unchanged at 6.7%, which is still above RBI’s upper tolerance limit of 6%.

Real estate stocks plummet
Major real estate companies listed on the stock exchanges – including Sobha, Oberoi Realty and Godrej Properties – registered a decline in the range of 0.4-5.4% on worries the repo rate hike would make buying property more expensive.

Source: NSE

“With repo rates now at 6.25%, there may be some repercussions on housing uptake. This hike will undoubtedly push up home loan interest rates, which had already crept up after four consecutive rate hikes this year,” said Anuj Puri, Chairman, ANAROCK Group.

The recovery that was witnessed after the opening up of the economy post Covid was likely to be affected, experts said.

“The real estate sector had started seeing gradual recovery across key property markets, driven primarily by end-users; however, the repeated rate hikes may impact the interest rate-sensitive sector,” said Ramani Sastri - Chairman & MD, Sterling Developers.

Asian markets were in the red, with Hong Kong’s Hang Seng sinking the most at 3.2% decline. Nikkei 225 was down 0.72% and China’s Shanghai SE Composite Index fell 0.40%.

On the BSE, 1,978 stocks ended on a negative note while 1,522 closed with gains.

Brent crude oil prices went below $80 per barrel at $78 a barrel on fears demand will be impacted amid a global economic slowdown.

Foreign institutional investors (FII) sold equities worth ₹1,241 crore while domestic institutional investors (DII) bought shares worth ₹388 crore on Wednesday.

SEE ALSO: RBI’s lower rate hike as expected, but Das’ commentary still hawkish, say analysts
RBI hikes repo rate by 35 bps, taking rates to a high of 6.25% – Das says inflation remains ‘high and broad-based’