The benchmark indices BSE Sensex and NSE’s Nifty 50 closed lower yesterday following losses in global equities and hawkish comments by the Reserve Bank of India (RBI) in the monetary policy committee minutes.
Asian markets also slipped, weighed down by the technology stocks. Overnight US stocks closed lower. Viral Acharya, RBI deputy governor, said in the minutes that he is likely to shift decisively to vote for a beginning of “withdrawal of accommodation” at the next MPC meeting in June.
The BSE Sensex closed lower by 11.71 points, or 0.03%, to 34,365.07, while the Nifty 50 edged down 1.25 points, or 0.01%, to close at 10,564.05. Among the sectoral indices on the BSE, IT led gains by rising 4.80% followed by teck 3.89%, while utilities, realty, bankex and power fell up to 1.22%.
The BSE MidCap was down 0.44%, while SmallCap gained 0.02%. TCS, Infosys, Coal India and Wipro were among the top gainers, whereas Yes Bank, Tata Steel, ICICI Bank and SBI were among the major losers.
Meanwhile the Indian rupee yesterday weakened past 66-mark to hit an over thirteen-month low against the dollar, while the 10-year bond prices climbed 6 basis points as probability of rate hike increased after the central bank’s surprised hawkish minutes.
This rupee declined for the fifth consecutive session, while the 10-year bond yield surged nearly 55 basis points since last two weeks to hit an over two-year high.
The home currency closed at 66.11 against US dollar — a level last seen on March 10, 2017, down 0.47% from its Thursday’s close of 65.66. The rupee opened at 66.08 a dollar and touched a low of 66.11.
However, the 10-year bond yield trimmed some of its gains and but managed to close higher from its previous close. The 10-year government bond yield closed at 7.686%, up 6 basis points, from its previous close of 7.63%. Bond yields and prices move in opposite directions.
“The Reserve Bank of India’s policy minutes are increasingly assuming more importance than the policy statement and April proved to be another such month. Majority of the members highlighted upside risks to inflation and confidence on growth prospects. This raises the odds that the policy stance might shift from neutral to hawkish, in June.
Recent rupee underperformance and rising 10 year bond yields add to the central bank’s concerns, alongside a sharp rise in global, particularly, US” said Radhika Rao economist at DBS Bank.
According to RBI minutes on Thursday, Viral Acharya, RBI deputy governor, said he is likely to shift decisively to vote for a beginning of “withdrawal of accommodation” at the next Monetary Policy Committee (MPC) meeting in June. This was the strongest guidance given by a MPC member ever. Earlier, RBI executive director Michael Patra voted for a 25 basis point hike in the repo rate at the February and April meetings.
“The minutes of the MPC’s meeting have a distinctly hawkish tinge as compared to our reading of the statement itself.
While incoming data and policy decisions related to factors such as minimum support prices, excise on fuel and expenditure announcement remain critical, today’s minutes suggest that a back-ended rate hike in 2018 remains a possibility if headline inflation exceeds the trajectory set out by the MPC”, said Aditi Nayar principal economist at ICRA. The remaining four members including RBI governor continue to wait for more data for the future course of interest rates.
Both, rupee and bonds were already under pressure following an increase in crude oil prices ,which may lead to higher inflation and fiscal slippage, according to analysts.
Slowing inflows into local and debt markets from foreign investors also added pressure. Since start of April, foreign investors have sold a combined of $500mn in local equity and debt market.
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