Sensex, Nifty trim losses as RBI hikes rate for first time in nearly four years; what's ahead

Indian equities remained lower on Wednesday after the RBI raised its policy rate for the first time in nearly four years, although both benchmarks recovered from their intraday troughs. At the last check, the 30 share BSE Sensex was down 187.54 points, or 0.26 per cent, at 72,880.27, after touching 72,520.73. The broader NSE Nifty fell 91.55 points, or 0.40 per cent, to 22,684.15, having rebounded from 22,578.25. The material does not state the size of the rate increase, the policy rate reached, or the RBI guidance accompanying the decision.

A higher policy rate can lift banks’ funding costs and borrowing rates, tightening financial conditions for companies and households. Banks and non banking finance companies may face pressure if deposit repricing outpaces loan yields, while real estate, automobiles and other credit sensitive consumer sectors could see concern over demand and financing costs. Insurers may be affected through bond portfolio valuations, although higher reinvestment yields can offer an offset over time. A sustained rise in government bond yields, followed by higher lending and deposit rates and continued weakness into the close, would confirm this reading. Stable yields, limited transmission and a fuller equity recovery would weaken it.