09 Jun , 2022 By : Kanchan Joshi
NEW DELHI : Stock markets ended lower for the fourth consecutive day on Wednesday with the Nifty and Sensex declining 0.37% and 0.39%. The Reserve Bank of India’s move to raise the repo rate by 50 basis points came on expected lines, while the absence of a hike in the cash reserve ratio (CRR) was a positive takeaway for markets.
This led to some recovery in the indices from the day’s lows. However, the markets could not sustain the gains as focus shifted to global markets, which expect the US Federal Reserve policy next week to be hawkish, said analysts. Rising crude prices, selling by foreign institutional investors and a weak rupee also weighed on concerns.
“Absence of fresh negatives resulted in a relief rally in equity and bond markets after the announcement of the monetary policy committee (MPC) meet outcome. However, this rally was used by investors/ traders to lighten their positions," said Deepak Jasani head of retail research, HDFC Securities.
The focus has shifted to upcoming central bank meetings in Europe and the US. The fall in European shares on Wednesday was also attributed to investors bracing for the European Central Bank’s (ECB’s) meeting on Thursday followed by the US Fed’s meeting next week. There are worries that central bank tightening will stifle global growth, said analysts.
The bond market reacted positively as the RBI’s policy measures were on expected lines and without any negative surprise, said experts. This led to a relief rally in the bond market. A 50bps hike in the repo rate was factored in the 10-year yields, which moved above 7.5 percent before the policy outcome, only to retreat lower to 7.45%, said Amar Ambani, head, institutional equities, Yes Securities.
RBI governor Shaktikanta Das refrained from providing any further guidance on the terminal repo rate, which is the level of repo rate at the end of a rate hiking cycle besides announcing any further liquidity reduction measures. Edelweiss AMC said the bond market has interpreted this as a “dovish signal".
The comment on the orderly completion of the government borrowing programme also has served to cool the 10-year G-sec yield, said Aditi Nayar, chief economist, Icra.
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