Sensex declines 200 pts, Nifty below 24,600: RBI monetary policy among key factors behind market decline

Sensex, Nifty see profit-booking in August 6 trade. 

The benchmark indices Sensex and Nifty erased early gains to trade lower on Wednesday, dragged by renewed concerns over US President Donald Trump’s tariff threat and persistent foreign fund outflows.

Sensex fell 166.26 points or 0.21 percent to settle at 80,543.99 with 18 of its constituents ending lower and 12 with gains. During the day, it declined 261.43 points or 0.32 percent to hit a low of 80,448.82. The Nifty dipped 75.35 points or 0.31 percent to close at 24,574.20. In the intraday session, the index decreased 110.35 points or 0.44 percent to hit a low of 24,539.20.

Wipro, IndusInd Bank, Dr. Reddy's Laboratories, Jio Financial Services and Cipla were among the major drags in the Nifty index.

Key factors dragging the market:

1) RBI Holds Key Rates Steady: The Reserve Bank of India (RBI) on Wednesday kept its key repo rate unchanged at 5.5 percent in a unanimous decision, citing global trade uncertainties and the potential impact of Trump's tariff policies. The central bank also retained its 'neutral' stance.

RBI Governor Sanjay Malhotra said on-track monsoon rains and the upcoming festival season are expected to support domestic growth, but external challenges remain. The decision disappointed some investors who were expecting a dovish tilt amid rising global trade tensions.

Indian shares fell post-policy announcement, led by rate-sensitive sectors. The Nifty Realty index dropped 2.4 percent, while the Consumer and Auto indices fell 0.9 percent each. Financials erased early gains and were down 0.3 percent.

Broader markets underperformed, with the Nifty Smallcap and Midcap indices declining 1.4 percent and 1.2 percent, respectively. Reuters said analysts attributed their underperformance to greater exposure to the domestic economy and higher sensitivity to borrowing costs.

2) Trump’s Tariff Warning: Investor sentiment took a hit after President Trump, in a CNBC interview on Tuesday, renewed threats to sharply increase tariffs on Indian goods over New Delhi’s continued purchases of Russian oil.

"We settled on 25% but I think I’m going to raise that very substantially over the next 24 hours, because they’re buying Russian oil. They’re fueling the war machine," Trump said.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, "President Trump's rhetoric will continue to weigh on the markets in the near-term. India is unlikely to concede to unjust demands, which may result in short-term pain for the economy. GDP growth for FY26 could see a marginal decline to 6.2 percent from the earlier estimate of 6.5 percent. Corporate earnings may also face minor headwinds."

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3) Rising Crude Prices: Global crude oil benchmark Brent rose 0.64 percent to USD 68.07 a barrel. Higher crude prices pose inflationary risks for import-dependent economies like India, raising concerns over fiscal stability and impacting sectors sensitive to fuel costs.

4) Foreign Fund Outflows: Foreign Institutional Investors (FIIs) remained net sellers, offloading equities worth Rs 22.48 crore on Tuesday, as per exchange data. Continuous FII selling exerts pressure on domestic equities and adds to market volatility.

5) India VIX Inches Up: The India VIX, which measures market volatility and is often termed as the 'fear gauge', rose 1.54 percent to 11.89. A rise in VIX reflects heightened investor nervousness and suggests increased caution among market participants, especially amid global uncertainty.

Technical View

Anand James, Chief Market Strategist at Geojit Financial Services, said, "Slippage past 24,670 rendered the Nifty trend sideways. Despite bargain hunting attempts later in the day, momentum failed to sustain, with only about 43 per cent of Nifty 500 constituents closing above their respective VWAP, indicating a negative bias."

He added that the 24,450-24,850 range needs to be decisively breached for a clear directional move, with 24,540-24,727 seen as the near-term sideways band.

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