The Reserve Bank of India's Monetary Policy Committee unanimously hiked the repo rate by 25 basis points to 5.50% and shifted its policy stance from neutral to "calibrated tightening," signalling that rate cuts are off the table in the near term. According to The Hindu BusinessLine, the RBI also revised its FY2027 inflation forecast upward to 5.2% from 5.0% and its GDP growth estimate to 7.1% from 6.7%. As per Emkay Global Financial Services, "The change in stance to calibrated tightening felt more like a forward guidance than a policy stance per se, but has prepared markets for a higher-for-longer interest rate environment." The central bank's rate decision isn't what's driving this market, with eight straight weeks of losses coming from forces outside India's control, including US 10-year yields above 5.25%, Brent back above $100, and a rupee near 96 to the dollar. RBI Governor Sanjay Malhotra stated that "Rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook."
Metal stocks experienced severe selling pressure, with the Nifty Metal index tumbling 2.3% to touch an intraday low of 12,303.45 points on Wednesday, October 7, compared to 12,599.75 points at the previous equity market close. According to The Hindu BusinessLine, selling pressure was concentrated in consumer discretionary, metals and financial services. National Aluminium led the decline with a 4.4% intraday loss to ₹322.25, while Adani Enterprises fell 4.1% to ₹2,732. JSW Steel declined 2.6% to ₹1,225.90, Hindalco dropped 2.5% to ₹916.20, and Vedanta Ltd fell 2.5% to ₹258.80. Jindal Steel and NMDC also declined 2.7% and 2.6% respectively, while Hindustan Copper and Hindustan Zinc fell 1.4% and 1% respectively. Higher interest rates in the economy are a negative trigger for capital-intensive sectors like metal and mining, which need heavy financing and credit support to carry out their capex expansions or production. Elevated interest rates also increase the cost of funds for these metal and mining companies, which, combined with the softening commodity metal prices in the global market, further dented sentiment.
Equity benchmarks remained in the red through mid-afternoon trade on Wednesday after the RBI's policy announcement. At 1.44 pm, the BSE Sensex was trading at 72,644.84, down 422.97 points or 0.58%, while the NSE Nifty 50 stood at 22,597.20, lower by 178.90 points or 0.79%. However, the indices later recovered most of their losses, with Sensex trading 154.23 points lower at 72,929.75 and Nifty down 87.40 points at 22,687.35. According to ET Now, earlier in the session, the 30-share BSE Sensex dropped 547.08 points, or 0.74% to 72,520.73, while the NSE Nifty fell 197.85 points, or 0.86% to 22,578.25. Following the rate hike announcement, the Sensex fell as much as 599 points, or 0.8%, to an intraday low of 72,468.72, while the Nifty 50 declined 230 points, or 1%, to 22,546.30. While banking and financial stocks supported the recovery, sectors like metals, auto, real estate declined due to the potential impact of the RBI rate hike move in the upcoming period. Banking and financial stocks supported the recovery, with Kotak Mahindra Bank, Bajaj Finance, ICICI Bank, Axis Bank and State Bank of India among the Sensex gainers, along with Bharti Airtel. As per SBI Securities, Bharti Airtel, Kotak Mahindra Bank, and ICICI Bank were the top three positive contributors to the Nifty. Titan, Asian Paints, Bharat Electronics, Maruti Suzuki, Hindustan Unilever and Mahindra & Mahindra were among the major laggards.
Crude oil remained elevated, with Brent crude trading 0.98% higher at $101.5 per barrel, adding to market concerns about rising energy costs. According to The Hindu BusinessLine, COMEX gold slipped 0.51% to $4,165.90, weighed by elevated Treasury yields. MCX crude edged up 0.89% to ₹8,705, while the Indian rupee was largely steady at ₹96.36 against the dollar. The 10-year government securities yield hardened 5–6 basis points after the RBI announcement and was trading around 7.25%. As per Kotak Mahindra AMC, expectations of further rate hikes remain, with Deepak Agrawal expecting a further 25 basis-point hike at the December policy review, subject to the evolution of underlying inflation and second-round effects.
SBI Securities placed Nifty support at 22,530–22,550 and resistance at 22,840–22,860, with an extension toward 23,010 possible on a decisive breakout above 22,860. According to Qode Advisors, "The real message from today's MPC is not the 25 bps hike, but the RBI's willingness to change its reaction function." As per Axis Direct, "Near-term margins for banks will remain under pressure due to excess liquidity and lower-spread lending, though the outlook for net interest margins turns constructive in the second half as rate hikes reflect in EBLR-linked portfolios." Foreign Institutional Investors (FIIs) sold Indian equities worth ₹2,961.30 crore on Tuesday, according to exchange data. Asian markets also remained weak, with South Korea's Kospi, Japan's Nikkei 225 and Hong Kong's Hang Seng trading lower, while US markets ended higher on Tuesday. India VIX declined nearly 7.9% to around 13.6, signalling some reduction in immediate volatility expectations after three consecutive sessions of increases, though the RBI policy announcement could trigger renewed intraday volatility. Historical data shows that while a rising interest-rate environment is usually viewed as negative for equities, higher borrowing costs can squeeze corporate profitability, make loans more expensive and reduce the relative attractiveness of riskier assets, but the Indian equity market has experienced several periods of aggressive monetary tightening, with the Nifty's response varying significantly depending on the reason behind the rate hikes, underlying economic growth, corporate earnings and broader global environment.
