India’s benchmark stock indices were in for a shocker on an already volatile day as the Reserve Bank of India decided to implement its first rate increase since the onset of the pandemic.
The hike came into effect immediately and sent both the BSE Sensex and the Nifty 50 plunging 2.3 percent. The 30-share Sensex lost 1,306.96 points to close at 55,669.03, while the Nifty shed 391.50 points to end at 16,677.60 points on May 4.
“Although the rate hike was anticipated, the sudden announcement of a 40 basis point increase in the repo rate along with a 50 bps increase in the cash reserve ratio (CRR) in response to rising inflation spooked the markets, leading to a heavy selloff,” said Vinod Nair, head of research at Geojit Financial Services.
The rupee gained against the dollar after the RBI’s announcement.
The Indian stock markets had opened on a positive note but soon responded to the mixed cues from their Asian peers and pared all the gains. The global markets traded cautiously ahead of the outcome of the US Federal Open Market Committee meeting. An increase of more than 50 bps in US interest rates will extend the current consolidation phase, Nair said.
“The FOMC meeting outcome will also come today, so we believe this volatility will remain at elevated levels in the coming sessions too and advise investors to be cautious in these markets, using these dips to make fresh positions in fundamentally sound stocks,” said Mohit Nigam, head - PMS, at Hem Securities.
Stocks & Sectors
The negative sentiment engulfed the entire market and all sectoral indices ended the day with losses. The Nifty Media tanked the most, by 4.29 percent. The Nifty Realty and Metals fell 3.27 percent and 3.21 percent, respectively. The Nifty IT index declined 1.1 percent.
In the broader markets, the BSE Midcap index ended 2.63 percent lower, while the BSE Smallcap index was down 2.11 percent.
The India VIX, which indicates the degree of volatility traders expect over the next 30 days, was higher by 7.86 percent to 21.88 from 20.28.
Apollo Hospitals, Adani Ports and Hindalco were the top losers on the Nifty, losing 4.7 to 6.77 percent. Oil and Natural Gas Corporation, Britannia and Power Grid Corporation of India gained the most, advancing by 2.61 to 3.77 percent.
A short build-up was seen in Naukri.com, Alembic Pharmaceuticals and Indiamart, while a long build-up was witnessed in Rain Industries and Britannia.
Outlook for May 5
Ajit Mishra, VP - Research, Religare Broking
After the RBI’s surprise move, all eyes are on the US Fed meeting outcome amid expectations of a 50 bps rate hike. However, we feel their commentary on future rate hikes and inflation would be critical to set the market tone.
On the index front, the Nifty has finally breached the consolidation range of 16,800-17,300 on the downside and now we’re eyeing the 16,400 zone. We suggest aligning positions accordingly and continuing with the “sell on rise” approach.
Mohit Nigam, Head - PMS, Hem Securities
The immediate support and resistance levels for the Nifty are 16,500 and 17,000, respectively.
The immediate support and resistance levels for the Sensex are 54,500 and 56,000, respectively.
Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities
The market closed below the crucial level of 16,800 on the back of a negative result, which would push the market further down to 16,400/16,200 in the near term. On the upside, 16,800/16,900 would act as the biggest hurdle. Reducing weak long positions is advisable near the 16,800 levels and contra buying is recommended only around 16,200 and below.
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