What market liked about RBI monetary policy and what it did not

RBI policy did not cause any sell-off in stocks as the governor seemed to exhude confidence on growth in the coming fiscal.

As expected, the Reserve Bank of India's monetary policy committee (MPC) on April 5 left the key repo rate unchanged at 6.5 percent for the seventh time in a row. The central bank is focused on bringing inflation down, said Governor Shaktikanta Das in his speech. In its first meeting of the new fiscal (FY25), the rate-setting panel left the policy stance unchanged for the seventh consecutive time.

Das also announced that there will be no changes in the GDP growth forecast of 7 percent for FY25. On the inflation front, RBI MPC sees it moderating to 4.5 percent in FY25.

The market response to the policy was muted as investors shifted focus to global developments like the evolving likelihood of a US Federal Reserve rate cut in June and fluctuations in commodity prices.

"Despite this volatility, the Indian market appears to be holding its ground, possibly in anticipation of a pre-election rally," said Santosh Meena, Head of Research at Swastika Investmart.

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As the policy comes in line with Street expectations, take at look at what the market liked in the policy statement, and what could spoil the recent rally.

•Expect normal south-west monsoon to support agricultural activity.

•Expect record rabi wheat production in 2023-24 to help contain cereal prices.

•Domestic economic activity remains resilient, investment demand strong, business and consumer sentiment upbeat.

•Manufacturing expected to maintain momentum on sustained profitability.

•Services activity likely to grow above the pre-pandemic trend.

•Private consumption to gain steam on rural activity pick-up, expected rise in discretionary spending by urban households.

•Capex outlook bright on business optimism, healthy corporate, bank balance sheets, robust government capital expenditure and signs of upturn in the private capex cycle.

•Food price uncertainties to weigh on inflation outlook.

•Increasing incidence of climate shocks may aggravate food inflation.

•Low reservoir levels, especially in the southern states, hotter-than-usual summer, concerning.

•Tight demand supply conditions in certain pulses and the high prices of key vegetables.

•After witnessing sustained moderation, cost-driven price increases by firms rising.

•Crude prices rising.

•Geo-political tensions, volatility in financial markets, rising Red Sea disruptions, pose risks to the inflation outlook.

"From a stock market perspective, the announcements are likely to influence investor sentiment and market dynamics. The acknowledgment of surplus liquidity and the RBI's liquidity management efforts may lead to a positive reaction in the stock market, particularly among banking stocks." Sonam Srivastava, Founder and Fund Manager at Wright Research.

"Any indication of accommodative monetary policy measures could further bolster investor confidence, potentially driving upward momentum in the stock market," she said.

Also Read | RBI Monetary Policy | RBI holds repo rate at 6.5%: No impact on home loan EMIs

However, concerns over inflation and global economic risks may temper market gains. Banking sectors could benefit from the RBI's focus on liquidity management, while sectors sensitive to interest rate changes, such as real estate and infrastructure, may also see some impact. Additionally, sectors reliant on domestic consumption, such as FMCG and retail, could benefit from stable financial conditions and improved consumer sentiment.

"Overall, the stock market's momentum post-meeting will likely be influenced by a combination of domestic economic factors and global market trends," Srivastava said.