On April 9, Indian stock exchanges experienced a sudden downturn, despite the Reserve Bank of India’s (RBI) anticipated 25 basis point reduction in the key policy rate. The RBI’s Monetary Policy Committee not only slashed rates but also shifted its stance from ‘neutral’ to ‘accommodative’, hinting at a more growth-oriented approach. However, this positive signal was overshadowed by ongoing investor anxieties, particularly in sectors like banking, non-banking financial companies (NBFCs), and real estate.

Market Reaction to RBI’s Policy Shift

The BSE Sensex plummeted by 554 points, reaching an intra-day low of 73,673.06, while the Nifty 50 dropped 179 points to settle at 22,356.60. Broader market indices faced even steeper declines, with both the Nifty Midcap and Smallcap indices experiencing over 1.5% losses.

RBI Governor Sanjay Malhotra confirmed that the decision for the rate cut was unanimous among all six committee members. This marks the second consecutive 25 basis point cut in 2023, following a similar reduction in February that lowered the repo rate from 6.5% to 6.25%. Malhotra emphasized that the shift to an accommodative stance allows the RBI flexibility to adjust rates further based on inflation and growth trends, contrasting with a neutral stance that keeps options open.

Economic Outlook and Sector Performance

According to Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS, the RBI’s actions were expected and may lead to further rate cuts in the future. He noted that with inflation decreasing, the RBI has lowered its FY26 CPI forecast to 4% from 4.2%, while slightly adjusting GDP growth expectations from 6.7% to 6.5%.

Despite the central bank’s dovish signals, sectors sensitive to interest rates struggled. The Nifty Realty and Nifty PSU Bank indices were notably affected, each declining by 2.8%. The Nifty Financial Services index fell by 1.5%, and the Nifty Bank index lost over 1%.

Key Declines in Real Estate and Banking

• All stocks in the Nifty Realty index closed lower, with Phoenix Mills and Anant Raj each dropping over 5%.
• Godrej Properties, Brigade Enterprises, and Sobha saw declines of more than 2%.
• In the banking sector, IDFC First Bank was the only gainer, while major players like Bank of Baroda, SBI, and Canara Bank dropped over 2%.

Vimal Nadar, Head of Research at Colliers India, remarked that ongoing rate cuts would enhance homebuyer confidence, particularly in the affordable housing market, although global uncertainties continue to pose risks.

Mixed Performance in the Auto Sector

The Nifty Auto index exhibited a mixed performance, maintaining a flat trajectory. Stocks like TVS Motor, M&M, Hero MotoCorp, and Bajaj Auto gained over 1%, while others, such as Bharat Forge, Bosch, and MRF, saw losses ranging from 1% to 3%.

In summary, despite the RBI’s proactive policy adjustments aimed at fostering growth, investor sentiment remains cautious. The immediate market reaction reflects concerns over global economic conditions and domestic valuations. Analysts predict that with additional easing and improving macroeconomic indicators, there could be a more favorable environment for recovery in the upcoming quarters.