Equity, bond markets react positively to RBI’s MPC outcome

Adani Enterprises and Adani Ports led the gains, rising 13.13% and 9.01%, respectively at the Nifty, while other group stocks such as Adani Transmission, Adani Power and Adani Wilmar gained up to 5%. Ambuja Cements, ACC and NDTV added to their gains with only Adani Total and Adani Green being down by 5%.

Dhiraj Relli, MD & CEO, HDFC Securities said, “The bond markets and equity markets reacted well to the monetary policy committee (MPC) outcome as the MPC did not sound more hawkish than most expectations. Absence of a CRR hike also was a relief.”

Experts said that the RBI has taken a more optimistic view on domestic growth by increasing the GDP forecast while cautiously keeping CPI inflation at 5.3% for FY24.

Meanwhile, global markets traded with hopes as investors digested US Fed chair Jerome Powell’s speech, which stated that disinflation had begun but pointed towards the possibility of further rate hikes in response to a stronger job market, said Vinod Nair, head of research at Geojit Financial Services.

With no negative surprises from the RBI’s MPC meet, investor buying continued in the IT, banking & others.

The reducing recession concerns post Powell’s comments on disinflation also led to improved sentiments for the IT services. Stock prices of other rate sensitive sectors including auto, consumer durables, realty, also reacted well to the MPC outcome. The strong US market cues in overnight trades too had boosted market sentiment.

Sandeep Yadav, head—Fixed Income, DSP Mutual Fund said “There was some expectation of RBI easing the stance or sounding data dependent. But the governor’s statement did not entertain such thoughts, due to which g-sec yields rose marginally by 3bps to 7.33%.”

Lakshmi Iyer CEO—Investment Advisory, Kotak Investment Advisors Ltd said that while chances of pause still remain, the uncertainty may persist and she expects range bound yield movement till then —oscillating between global data and domestic cues.

The rupee after the policy announcement closed 20 paise stronger at ₹82.49 to a dollar, which analysts attribute to dollar inflows.

With Repo Rate anchored at 6.5%, benchmark 10-year IGB yield is expected to trade in a range of 7.25 to 7.5% in the medium-term as per Edelweiss Mutual Fund. The fund house expects sovereign yield curve to steepen in FY24 amid demand-supply dynamic on the long-end. Credit spreads are also expected to widen gradually in FY24 amid continued growth in credit off-take and adverse liquidity conditions in global markets for fund raising.

Anindya Banerjee, VP – Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd said that RBI monetary policy was on expected as the central bank hiked rates by 25 bps and maintained a status quo on the stance. Over the near term, we could see USDINR operate within a range of 82.40 and 83.00 levels on spot.”

However, there was no respite seen in Foreign Portfolio Investor’s selling. FPI that have already sold ₹32,333 Crore worth equity year-to-date till 7 February were net sellers of ₹736.82 Crore worth of equity on Wednesday.

The unabated FII selling remains the biggest drag on the market now. In this context traders will also use rallies to sell feel analysts

Intra-day volatility may continue due to uncertainty in global markets and worries that central banks in key economies may maintain hawkish stance going ahead, which could trigger strong bouts of sideways movement, said experts.

“Nifty seems to have made a higher bottom on Feb 07 in short term time frame. It could now face resistance from 17972-18016 band while 17652-17721 band could offer support in the near term,” said Deepak Jasani, Head of retail Research at HDFC Securities.

In this context what investors should do now is to buy high quality stocks in growth segments like banking, IT, capital goods, telecom and cement and bottom-up investing across sectors, said analysts. Patient investing now will fetch impressive returns in the medium to long-term.