RBI Governor Sanjay Malhotra said permission has been granted to Authorised Dealer banks to lend in Indian Rupees to non-residents from Bhutan, Nepal and Sri Lanka for cross-border trade transactions. File.
| Photo Credit: Reuters

The 30-share BSE Sensex climbed 123.45 points or 0.15%, to 81,758.26 in early trade and the NSE went up 39.65 points or 0.16%, to 25,052.80 on Wednesday.
| Photo Credit: Reuters

Benchmark equity indices climbed in early trade on Wednesday (October 9, 2024) ahead of the Reserve Bank of India’s monetary policy decision.

Buying in banking and IT stocks added to the positive trend in markets.

The 30-share Bombay Stock Exchange (BSE) Sensex climbed 123.45 points or 0.15%, to 81,758.26 in early trade. The National Stock Exchange (NSE) went up 39.65 points or 0.16%, to 25,052.80.

Among the 30 Sensex companies, Tata Motors, Tech Mahindra, Bajaj Finance, Maruti Suzuki India, HCL Technologies, State Bank of India, Bharti Airtel, Asian Paints and Axis Bank were the gainers.

ITC, Nestle India, HDFC Bank, Kotak Mahindra Bank, Reliance Industries and JSW Steel were the laggards.

Foreign Institutional Investors (FIIs) offloaded equities worth Rs 5,729.60 crore on Tuesday, while Domestic Institutional Investors (DIIs) bought equities worth ₹7,000.68 crore, according to exchange data.

“The ‘Sell India, Buy China’ strategy pursued by the FIIs recently appears to be coming to an end as indicated by the declining FII sell numbers and the profit booking in Chinese stocks, particularly those listed in Hong Kong,” V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

“FIIs are selling on valuation concerns and DIIs are buying because they have deep pockets to buy and the pockets are getting deeper. This trend is likely to continue,” Mr. Vijayakumar added.

Market participants also kept a close eye on the RBI’s monetary policy.

Experts are of the opinion that the RBI may not follow the U.S. Federal Reserve, which lowered the benchmark rates by 50 basis points, and the central banks of some developed nations, which have since reduced the interest rates.

“BJP’s victory in Haryana has come as a morale booster for the party and confidence booster for markets. The sentiments will get a further boost if the Monetary Policy Committee (MPC) decides to change the monetary stance from accommodating to neutral and sound a bit dovish today. A rate cut, however, is unlikely since food inflation continues to be a worry,” he said.

In Asian markets, Shanghai, Hong Kong and Seoul were trading in the red territory while Tokyo was quoting in the green. Global oil benchmark Brent Crude climbed 0.32% to $77.43 a barrel.

U.S. markets ended with gains in overnight deals on Tuesday (October 8, 2024).

On Tuesday (October 8, 2024), the 30-share BSE Sensex rose by 584.81 points or 0.72% to close at 81,634.81. The NSE Nifty jumped 217.40 points or 0.88% to finish at 25,013.15.

RBI Governor Shaktikanta Das on June 7, 2024, said the Monetary Policy Committee has decided to keep the repo rate unchanged at 6.5%. File
| Photo Credit: ANI

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has decided to keep the repo rate unchanged at 6.5%. The decision, taken at the MPC’s meeting on Friday, marks the eighth time in a row that the policy rate has been put on hold to keep the focus on battling high inflation.

The MPC has revised its GDP growth forecast upwards from the earlier 7% estimate to 7.2% for the financial year 2024-2025. It has also decided to remain focused on withdrawal of accommodation to ensure that inflation does not accelerate, while supporting growth.

“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2% while supporting growth,” Reserve Bank of India (RBI) governor Shaktikanta Das said after the meeting. 

Divided MPC

Mr. Das, along with MPC members Shashanka Bhide, Rajiv Ranjan, and Michael Debabrata Patra voted to keep the policy repo rate unchanged at 6.5% and to remain focused on the withdrawal of accommodation, while their colleagues Ashima Goyal and Jayanth R. Varma voted to reduce the policy repo rate by 25 basis points and for a change in stance to neutral. 

“There were signs of a more divided policy committee, with one additional member voting for a softening in stance as well as policy direction. The majority retained their cautious stance to guide inflation towards the 4% target on a durable basis, despite recent signs of disinflation,” said Radhika Rao, Executive Director and Senior Economist, DBS Bank, commenting on the decision.

Higher growth forecast

According to the MPC, high frequency indicators of domestic activity are showing resilience in 2024-25. The south-west monsoon is expected to be above normal, which augurs well for agriculture and rural demand, but headwinds from geopolitical tensions, volatility in international commodity prices, and geoeconomic fragmentation pose risks to the outlook. 

Taking various factors into consideration, real GDP growth for 2024-25 was projected at 7.2% as compared with the earlier projection of 7%, with the first quarter (Q1) growth estimate at 7.3%; Q2 at 7.2%; Q3 at 7.3%; and Q4 at 7.2%. The risks are evenly balanced.

Elevated food inflation

Emphasising that inflation has seen sequential moderation since February 2024, albeit in a narrow range from 5.1% in February to 4.8% in April 2024, the RBI Governor said that food inflation, however, remains elevated due to persistence of inflation pressures in vegetables, pulses, cereals, and spices. 

“Looking ahead, overlapping shocks engendered by rising incidence of adverse climate events impart considerable uncertainty to the food inflation trajectory,” he said, while announcing the MPC’s decisions. He added that volatility in crude oil prices and financial markets, along with the firming up of non-energy commodity prices, pose upside risks to inflation. 

Taking various factors into account, CPI inflation for 2024-25 is projected at 4.5%, with Q1 at 4.9%; Q2 at 3.8%; Q3 at 4.6%; and Q4 at 4.5%. The risks are evenly balanced.

Mr. Das emphasised that the path of disinflation has been interrupted by volatile and elevated food inflation due to adverse weather events. “Inflation is expected to temporarily fall below the target during Q2:2024-25 due to favourable base effect, before reversing subsequently. The MPC will remain resolute in its commitment to aligning inflation to the 4% target on a durable basis,” he said. 

The MPC reiterated the need to continue with the disinflationary stance, until a durable alignment of the headline CPI inflation with the target is achieved.