RBI policy: How the Indian stock market is expected to react tomorrow
3 min read 09 Aug 2023, 11:25 AM ISTRBI is expected to maintain the status quo on rates and monetary policy stance. The market is expected to be neutral since a status quo by the RBI is already factored in.
PremiumThe three-day meeting of the six members of the monetary policy committee (MPC) of the Reserve Bank of India (RBI) is underway and it will conclude on Thursday (August 10). Experts believe the domestic market may not see any significant reaction to the RBI MPC outcome if the central bank maintains a status quo on rates and monetary policy stance.
Experts believe the RBI will maintain a status quo on rates and stance on August 10.
According to a Mint survey of 10 economists, RBI MPC is likely to leave interest rates and policy stance unchanged at its meeting this week. All economists expect MPC to keep the repo rate unchanged at 6.5 per cent and retain the stance of withdrawal of accommodation.
While the majority expects RBI to maintain a prolonged pause after the August policy, the market is pencilling in a 50 per cent chance of 25 basis points (bps) hike over the next two RBI meetings.
Read more: RBI rate, stance to stay on pause: Poll
"The upcoming MPC policy will see the RBI reiterating caution amid a spike in perishable food prices, even as easing core inflation and possible mean reversion in food price trends in Q4CY23 would keep the RBI on hold, with a focus on the durable elements of inflation," said Madhavi Arora, Lead Economist at Emkay Global Financial Services.
Umesh Kumar Mehta, CIO of Samco Mutual Fund also expects a status quo by the RBI this week, but the odds of interest rate hike or cut is equally poised going ahead.
"Global economic and inflationary environment is still not up to the mark because of renewed strengthening of crude oil prices and surge in global food prices on extreme weather conditions. Fed and RBI alike suggest a 'when the facts change, I change my mind' mode. So, it is expected that going ahead only data will decide the course and fate of interest rate," said Mehta.
How can the market react?
The market is expected to be neutral since a status quo by the RBI is already factored in. However, the market may see some swings if there is a sharp revision in growth and inflation forecast.
"The market may remain neutral if the RBI MPC maintains a status quo. Rate-sensitive sectors like banking, auto and realty also may not see a bounce since they have already clocked strong gains in the recent past. If the RBI says it is ready to cut rates in the near future, these sectors may see fresh buying," said G. Chokkalingam, Founder & Head of Research at Equinomics Research.
Read more: RBI policy meet begins today: Can an uptick in inflation, US Fed hike push RBI to hike rates?
Aditya Gaggar, Director of Progressive Shares pointed out that the RBI is likely to maintain status-quo on the key interest rates for the third time in a row in its upcoming bi-monthly policy review despite the US Fed and the European Central Bank hiking benchmark rates, as domestic inflation is within the RBI's comfort zone.
"This has been a wide expectation across the markets and pretty much factored in by the bourses. However, there is vigilance in the committee's stance on the interest rate," Gaggar said.
"Any hawkish stance, (the chances of which happening are bleak) on the interest rates in the near term may lead to volatility in the rate-sensitive stocks in banking, NBFC, auto and real estate segment. Hence, overall there is a factored-in but cautious approach towards trades until the outcome comes in tomorrow," said Gaggar.
Read all market-related news here
Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.
