The Indian stock market declined on Friday following the RBI's decision to maintain the repo rate at 5.25%, with the Sensex falling 116.67 points or 0.16% to settle at 74,243.34 and the Nifty 50 index slipping 49.85 points or 0.21% to close at 23,366.70. Trent declined 2.23%, Tata Consultancy Services fell 0.95%, Tata Steel dropped 0.52%, NTPC, HCL Tech, and Bharti Airtel were among the biggest laggards. However, Hindustan Unilever, Axis Bank, Adani Ports, and Bajaj Finance emerged as the biggest gainers. The Sensex hit a high of 74,717.57 and a low of 73,988.75, gyrating 728.82 points during the trading session. Market breadth remained negative with 2,056 shares rising, 2,138 shares falling, and 217 shares unchanged on the BSE, indicating broader selling pressure across sectors.
The RBI's Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, unanimously voted to maintain the repo rate under the liquidity adjustment facility (LAF) at 5.25% for the third straight meeting. Accordingly, the standing deposit facility (SDF) rate remains at 5%, while the marginal standing facility (MSF) rate and the bank rate continue at 5.50%. The committee also retained its neutral policy stance as the central bank noted that the prolonged conflict in West Asia has increased risks to both global growth and inflation. On the domestic front, economic activity has remained resilient, supported by steady private consumption, sustained investment momentum, robust services exports and strong merchandise export growth in April 2026. However, higher freight and insurance costs, coupled with geopolitical uncertainties, are beginning to weigh on the economy. The RBI revised its FY27 real GDP growth forecast to 6.6% from 6.9% projected earlier, with growth now estimated at 6.6% in Q1, 6.3% in Q2, 6.5% in Q3 and 6.8% in Q4. CPI inflation for FY27 has been projected at 5.1%, compared with the earlier estimate of 4.6%, with quarterly inflation expected at 4.2% in Q1, 5.1% in Q2, 5.9% in Q3 and 5.4% in Q4. The RBI highlighted that elevated energy prices, global supply constraints, a weaker monsoon outlook and the risk of El Ni have increased inflation uncertainties.
Alongside the policy decision, the RBI announced a comprehensive package of measures to support the Indian rupee amid persistent foreign fund outflows. The central bank scrapped taxes on interest income and capital gains for eligible foreign investors in government securities from April 1, 2026, while broadening the universe of sovereign bonds available under its unrestricted foreign investment route. The RBI also offered concessional forex swaps for state-run firms raising overseas debt and said it would bear hedging costs on fresh three-to five-year FCNR(B) deposits until September 30 to attract dollar inflows from non-resident Indians. These measures are aimed at shoring up the rupee, which has plunged over 6% this year on war-driven surge in crude prices and record foreign fund outflows. The government will scrap taxes on interest income and capital gains for eligible foreign investors in government securities from April 1, 2026, providing additional support for foreign investment inflows.
The infrastructure and road construction sector experienced significant challenges in Q4FY26, with road and infrastructure firms seeing weak execution and margin pressure due to the ongoing West Asia crisis and execution delays. KNR Constructions and HG Infra reported revenue declines of 40% and 31% year-on-year respectively, while Ceigall and GR Infra's revenue grew 31% and 27% year-on-year respectively. Road construction in FY26 is expected to be 9,000–9,500 kilometres, a five-year low, with Ebitda margins contracting by 130 basis points. Ebitda margins were under pressure due to rising raw material costs and lower execution, though Ceigall's margins expanded 310 basis points year-on-year and KPIL's margins expanded 120 basis points year-on-year. The working capital cycle for top companies deteriorated to average 187 days in FY26, against 147 days at FY25, with HG Infra's gross debt increasing ₹560 crore year-on-year and NCC's gross debt rising ₹770 crore due to investments in hybrid annuity model and solar assets.
The RBI's decision to maintain the repo rate at 5.25% came as a relief to markets, with investors viewing the unchanged policy stance as appropriate given current economic uncertainties. However, profit-taking emerged as the markets closed lower amid concerns over the RBI's downward revision in growth forecasts and calibrated inflation outlook. Vinod Nair, Head of Research, Geojit Investments Limited, noted that domestic equities closed flat as the monetary policy outcome aligned with expectations, while supportive measures announced by the RBI governor helped strengthen the rupee. However, the downward revision in growth forecasts and a calibrated inflation outlook prompted profit booking as investors reassessed near-term demand and earnings prospects. Foreign Institutional Investors (FIIs) offloaded equities worth ₹4,447.06 crore on Thursday (June 4, 2026), adding to the bearish sentiment. The RBI minutes of the MPC meeting will be published on 19 June 2026, with the next MPC meeting scheduled for 3 to 5 August 2026.
