Stocks

FMCG under pressure as Realty, PSU Bank gain

Mumbai, June 8 Benchmark indices were trading flat amid volatility in the afternoon session on Wednesday after the RBI announced its decision to hike the policy repo rate by 50 basis points.

Markets remained volatile in the first half following RBI’s announcement that the monetary policy committee (MPC) has unanimously voted to increase the repo rate by 50 basis points from 4.40 per cent to 4.90 per cent. Indices managed to recover from early losses, but were trading flat, dragged by FMCG, consumer durables and oil & gas stocks, tracking losses in heavyweights such as Reliance. 

At 1.55 pm, the BSE Sensex was trading at 54,905.15, down by 201.59 points or 0.38 per cent. It recorded an intraday high of 55,423.97 and a low of 54,683.30. The Nifty 50 was trading at 16,366.10, down 50.25 poins or 0.31 per cent. It recorded an intraday high of 16,514.30 and a low of 16,293.35.

State Bank of India, Bajaj Finance, Tata Steel, Hero Motocorp and Titan were the top gainers on the Nifty 50 while Reliance, Bharti Airtel, ITC, Britannia and Bajaj Auto were the top losers.

Markets reacted to the rate hike which comes in the backdrop of intensified inflationary pressures even as the economic growth is gaining momentum. The MPC voted unanimously to remain focused on the withdrawal of accommodation while supporting growth.

The retail inflation projection for FY22 has been upped sharply to 6.7 per cent (taking into account average crude oil price at $105 per barrel) from 5.7 per cent even as GDP growth projection has been retained at 7.2 per cent.

Sunil Nyati, Managing Director, Swastika ​Investmart Ltd said, “The RBI’s actions today were in line with the market’s expectations as the overall inflation numbers were far away from the central bank’s comfort levels. However, the silver lining was the untouched CRR rates and the market is rejoiced by the same.  Nevertheless, the current inflationary pressures could increase further due to geopolitical factors and rising commodity prices.”

According to Shivam Bajaj, Founder & CEO at Avener Capital, “In an attempt to curb inflation, the expectations of this rate hike had been factored in the form of increase in bond yields, which might result in expensive borrowing for corporates. However, a consequent correction expected in raw material prices as a result of this announcement might provide a stable long term growth plan for the overall economy.”

Further rate hikes possible  

Analysts expect further rate hikes to curb inflationary pressures. However, a majority of factors including monsoon performance, its impact on the food prices, the effectiveness of the price control measures taken by the government and geopolitical factors will impact rate hikes. 

Sujan Hajra – Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers said, “The measures today are consistent with sharply upwardly revised inflation and unchanged growth projections for the current financial year by the Reserve Bank.”

“Also, continued high inflation, aggressive rate hike plans of the US Federal Reserve, strengthening of US dollar and portfolio capital outflow from emerging market economies including India are factors which influenced the decision of the RBI. The central clearly is front-loading the monetary policy tightening to normalise the rate to the pre-pandemic level quickly,” added Hajra. 

According to Parth Nyati, Founder, Tradingo, “The overall policy looks good from the market’s perspective and now the market will look for US CPI numbers and the FOMC meeting next week.”

Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities said, “The tone of the policy continues to be hawkish and we expect the RBI to continue hiking repo rate to ensure a neutral to marginally positive real policy rate.”

Financials, metals, realty in focus

Nifty Realty was up over 2 per cent while Nifty PSU Bank was up over 1 per cent. Nifty Bank and Nifty Financial Services were up 0.55 per cent and 0.58 per cent, respectively. Nifty Metal was up 0.56 per cent. Nifty Auto was up 0.45 per cent. 

Meanwhile, Nifty FMCG was down 0.44 per cent. NIfty Consumer Durables and Nifty Oil & Gas were down 0.21 per cent and 0.24 per cent, respectively. 

Broader market gains

Broader indices were in the green. 

Nifty Midcap 50 was up 0.40 per cent while Nifty Smallcap 50 was up 0.42 per cent. The S&P BSE Midcap was up 0.41 per cent while the S&P BSE Smallcap was up 0.20 per cent.

The volatility index softened 2.82 per cent to 19.85.

Published on June 08, 2022