Sensex, Nifty Recover From Day's Lows After RBI Rate Hike; Malhotra Says Rate Cuts 'Off The Table'

Indian equity benchmarks Sensex and Nifty recovered sharply from their day's lows on Wednesday, October 7, after the Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.50%, even as Governor Sanjay Malhotra ruled out rate cuts in the near term.

The Sensex, which had fallen more than 500 points earlier in the session, recovered around 400 points from the day's low after the policy announcement. At around 10:26 am, the index was down 197 points, or 0.27%, at 72,870, while the Nifty 50 traded 99 points lower, or 0.43%, at 22,677.

The market reaction was mixed across rate-sensitive sectors. Banking and financial stocks recovered after the policy, while auto and realty shares remained under pressure. The Nifty Auto index was down around 1%, with Bajaj Auto, Bharat Forge, Hero MotoCorp and other auto shares among the losers.

The policy itself was largely in line with expectations, but the RBI's shift from a neutral stance to “calibrated tightening” and Malhotra's comments on the future course of rates became the bigger cues for the market.

Why Sensex, Nifty Recovered After RBI Rate Hike

The RBI's Monetary Policy Committee unanimously voted to raise the repo rate from 5.25% to 5.50%, marking the first increase since February 2023.

While the benchmarks remained in the red, losses narrowed considerably after the announcement. Value buying at lower levels helped the market recover, while banking shares reversed their earlier weakness.

The Nifty Bank, Nifty Private Bank, Nifty PSU Bank and Nifty Financial Services indices were trading up to 1% higher around 10:30 am. Kotak Mahindra Bank, Union Bank of India, Canara Bank, Punjab National Bank, Federal Bank and ICICI Bank gained up to 2%.

Autos moved in the opposite direction. The Nifty Auto index fell around 1%, while realty stocks also remained weak as investors assessed the prospect of higher borrowing costs following the RBI decision.

The market had entered Wednesday's session under pressure. The Sensex fell as much as 529 points to 72,539.18, while the Nifty dropped 191 points to an intraday low of 22,585.05.

Apart from the RBI policy, higher crude oil prices, elevated US bond yields and continued foreign institutional investor selling remained among the factors weighing on sentiment.

Brent crude traded above $101 a barrel on Wednesday, while foreign institutional investors had sold Indian equities for an eighth consecutive session on Tuesday.

RBI Governor Rules Out Rate Cuts In Near Term

The RBI's guidance on where interest rates could go next emerged as a key takeaway from Wednesday's policy.

“Rate cuts are off the table” in the near term, Malhotra said. The Governor indicated that the next policy action would either be another rate increase or a pause, depending on how inflation and other economic conditions develop.

The MPC also changed its stance from neutral to calibrated tightening. Four of its six members voted in favour of the change.

The shift comes as the inflation outlook has turned less comfortable. The RBI raised its FY27 inflation forecast to 5.2% from 5% and expects CPI inflation to average 5.8% over the next three quarters.

At the same time, the central bank raised its FY27 real GDP growth projection to 7.1% from 6.7%, pointing to resilience in domestic economic activity.

For the stock market, attention now moves beyond Wednesday's 25-bps hike to the future path of interest rates. Inflation, crude oil prices, global bond yields and foreign investor flows will remain among the cues for Sensex and Nifty as investors assess how long the tighter monetary policy environment could last.

Also Read - Auto Stocks Fall After RBI Rate Hike; Ashok Leyland, Bajaj Auto, Hyundai Drop Up To 3.5%