Domestic equity benchmark Nifty 50 continues to demonstrate its strong bullish momentum, while the Bank Nifty index is exhibiting some underperformance in anticipation of the Reserve Bank of India (RBI) policy outcome today (June 8). The Nifty index has gained a little over 1,100 points or 6 percent, while the Bank Nifty is up 7.8 percent since the last Monetary Policy Committee (MPC) meeting of the RBI in April, 2023.
Headed by RBI Governor Shaktikanta Das, the six-member rate-setting monetary policy panel began deliberations on Tuesday (June 6) and the decision would be announced on Thursday.
The central bank's decision to keep the key benchmark interest rate — the repo rate (the rate at which the RBI lends to other banks) — unchanged in its first monetary policy review meeting in April has helped equity markets see a strong run in the last two months.
Investors are becoming more optimistic due to the anticipation of a positive revision in the RBI's inflation forecast during the ongoing MPC meeting. "It is expected that the RBI will maintain its pause on rate hikes, considering the significant improvement in inflation, which has now come within the RBI's comfort zone," said Vinod Nair, Head of Research at Geojit Financial Services.
Most analysts anticipate that the RBI will maintain the repo rate at 6.5 percent due to declining inflation, currently at an 18-month low. This comes after a period of consistent tightening of monetary policy since mid-2022, which has significantly lowered inflation.
Despite a pause in April, the central bank has raised the repo rate cumulatively by 250 basis points since May last year to tame inflation and that puts pressure on economic growth.
"Although the market is currently pricing in an unchanged policy, there is speculation that the governor's comments might adopt a hawkish tone due to robust economic growth coupled with persistent inflation concerns," said Santosh Meena, Head of Research at Swastika Investmart.
Additionally, Meena believes that there are emerging concerns regarding potential delays in the monsoon season, which could be addressed in the governor's commentary and potentially lead to some profit booking in the market.
"However, despite these potential headwinds, the overall market structure remains bullish, and any corrections that may occur are viewed as buying opportunities. If the Nifty manages to surpass the 18,700 level, it is likely to pave the way for a further move toward its all-time high of 18,888. On the downside, key support levels to watch are 18,450 and 18,180," the analyst said.
RBI policy outcome impact on stock market
Given the absence of a clear market trend, Sonam Srivastava, Founder at Wright Research has advised investors and traders to closely monitor market developments and adapt their strategies as necessary.
"Nifty has finally surpassed the hurdle at 18,700 but the prevailing underperformance of the banking pack is still weighing on the sentiment. We may see choppiness due to the outcome of the MPC’s policy meet and scheduled weekly expiry on Thursday. Amid all, we reiterate our positive view and suggest focusing on identifying opportunities from the leading sectors," said Religare Broking's Ajit Mishra.
"We expect markets to act positively and be supportive of autos and IT in the Nifty index. The financials, which have 37 percent weightage in the Nifty, have already seen a sharp rally in anticipation of bright economic prospects, and we do not expect a significant move here," said Sreeram Ramdas, Vice President at Green Portfolio PMS.
