Market participants were worried that the monetary policy committee (MPC) might take a note of rising oil prices that topped $95 a barrel mark recently and change their stance to ‘neutral’ from ‘accommodative’ while also raising reverse repo rate in the policy review, whose outcome will be announced on Thursday.
At 12.15 pm, the BSE Sensex was trading 817.19 points, or 1.39 per cent, lower at 57,827.63. The NSE Nifty50 stood at 17,275.35, down 241 points or 1.38 per cent.
The spike in US 10-year bond yield reflects the increasing concerns of high inflation. The market largely believes the US Fed is behind the curve. The January jobs report suggested an addition of 4.67 lakh new jobs in the US, which was way ahead of market expectations.
“Now it is beyond doubt that the Fed will have to act tough on inflation. If the Fed turns highly hawkish and delivers a 50 bps rate hike in March, that can cause a sharp correction in markets,” said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank said the MPC will have a tight rope-walk as they discuss the monetary policy stance and interest rates in the coming week in given global inflationary pressures, tightening monetary policies by global central banks, high oil prices, domestic inflation, and sharp rise in domestic bond yields.
“Given that the overnight call rate is closer to 4 per cent, we expect the RBI to change the reverse repo rate by up to 25 bps or make repo the operative rate. While a repo rate hike is not expected, it is possible that the MPC might change their stance to neutral from accommodative. Watch out for the narrative and tone of the MPC to get an indication on the expected interest rates in this calendar year,” Ekambaram said.
Cues were mixed from other Asian markets that opened for trading after long public holidays.
The two domestic indices climbed about 2.5 per cent last week, thanks to a strong Budget, even as weak global cues such as rising oil prices and volatility US stocks kept them on edge.
On Monday, Dr Reddy’s Labs jumped 5.74 per cent to Rs 4,600 after it announced that the Drugs Controller General of India (DCGI) granted approval to the single-shot Sputnik Light vaccine for restricted use in emergency situations in India.
Shares of Paytm were trading flat at Rs 954.05 after its third quarter results. Goldman Sachs has a target of Rs 1,460 on the stock.
Bajaj Finance declined 1.4 per cent to Rs 7,056. M&M dropped 1 per cent to Rs 832. HDFC Bank, Bharti Airtel, Infosys, Dr Reddy’s Labs and HDFC fell up to 1 per cent. Power Grid, NTPC and UltraTech Cement added up to 1.43 per cent. SBI edged 0.31 per cent higher to Rs 531.90.
PB Fintech, Tube Investments of India, Union Bank of India, TVS Motor Company, Minda Industries, GSK Pharma, Sundaram Finance, Clean Science & Technologies, KPR Mills, National Aluminium, Indian Bank, Phoenix Mills and Castrol India are among the companies that will announce their December quarter results today.
The week will see investors reacting to the RBI policy outcome on Thursday, its commentary on inflation, IIP reading, quarterly earnings and trends in the bond market.
