Indian equity markets came under renewed selling pressure on Wednesday, with the Sensex falling nearly 600 points and the Nifty 50 slipping below 22,600. The decline followed the Reserve Bank of India’s first interest rate increase in more than three-and-a-half years, while weakness in the rupee and a sharp rise in crude oil prices added to market concerns.
The Nifty 50 opened weak and touched 22,588 soon after trading began. It recovered some ground after the RBI delivered a 25-basis-point increase, in line with market expectations, instead of a widely feared 50-basis-point hike. The index reached an intraday high of 22,717.65, but remained 0.26% below the previous close.
Fresh selling emerged later in the session as the rupee weakened and crude prices remained elevated. The Nifty 50 reached its day’s low of 22,558.4 at around 2.15 pm, when it was down nearly 1%.
The 30-share Sensex followed a similar trajectory, falling to 72,468.72. It was lower by 599 points, or 0.82%, compared with the previous session’s close.
RBI’s policy stance raises concerns
Although the rate increase was widely anticipated, RBI Governor Sanjay Malhotra adopted a firm tone on the future policy direction. He said rate cuts were “off the table” in the near term, indicating that subsequent action would be either a pause or another hike, depending on incoming economic data.
The Monetary Policy Committee has also moved away from its earlier accommodative approach. In a 4:2 vote, it changed its stance to “calibrated tightening”. The central bank further cautioned that external pressures and the irregular weather pattern associated with El Nino could keep inflation elevated for longer than expected.
Crude oil rises above $100
Oil prices added to the negative sentiment in the domestic market. Brent crude futures climbed nearly 1% to $101.53 in international trading after fresh tensions involving Saudi Arabia and Yemen’s Houthi militias pushed prices above the $100 mark.
As a major crude importer, India remains sensitive to sharp movements in global oil prices. Analysts have identified elevated crude as one of the key reasons for the market’s weekly decline over eight consecutive weeks through the period ended October 1, its longest losing streak since 2001.
Rupee weakness weighs on equities
The RBI’s rate increase was expected to provide support to the Indian currency, but the rupee instead came under pressure from a stronger US dollar and rising crude prices. Increased demand for the greenback in global markets also weighed on the rupee and other Asian currencies.
The Indian currency depreciated 0.3% to 96.75. The weakness is likely to intensify selling by foreign institutional investors, who have withdrawn Rs 22,676 crore from Indian equities so far in October.
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