Stock Markets Start Unchanged, Weak Global Influences Dampen Mood
The Reserve Bank of India (RBI) has decided to keep interest rates unchanged at 5.5% in August 2021, amid rising uncertainties from Trump's tariffs on India. The impact of these tariffs, including increasing the US tariff rate on Indian exports, notably crude oil-related trade, has created global and domestic uncertainties that influenced RBI's cautious stance.
The RBI's decision was influenced by several key factors. Global trade tensions, caused by Trump's tariffs, increased economic uncertainty, restraining RBI from further rate cuts after consecutive cuts earlier in the year. The RBI's stance remains "neutral" but accommodative, balancing support for growth against inflation and external risks.
Although tariffs risk hurting exports and the rupee, RBI chose not to lower rates further immediately, waiting for clearer data on inflation and GDP growth amid the evolving trade scenario. The tariffs' pressure on the stock market and export sectors added caution, limiting RBI’s room for monetary stimulus until the macroeconomic outlook stabilizes.
RBI Governor Sanjay Malhotra noted limited policy space after prior reductions totaling 100 basis points since February, suggesting a pause until there is better clarity on the economy’s trajectory.
Meanwhile, the Indian equity benchmarks, Sensex and Nifty, opened flat on Wednesday. The Nifty Bank advanced 0.13%, while Nifty FMCG lost 0.26%, and Nifty Realty declined 0.82%. The Nifty smallcap 100 index slipped 0.64%.
In the stock market, Bharti Airtel led the gainers in the Nifty pack, but the Nifty IT index was the major loser, declining 0.92%. Coal India was the major laggard, down 1.41%.
Markets in Asia traded mixed on Wednesday. Japan's Nikkei 225 advanced 0.62%, while markets in China and Hong Kong were in the green zone. South Korea's Kospi edged lower by 0.21%.
Foreign portfolio investors (FPIs) were net sellers to the tune of Rs 22 crore worth of Indian equities on Tuesday, but domestic institutional investors (DIIs) net bought Rs 3,840 crore worth of shares on the same day.
In other news, US markets ended lower overnight, with the Dow Jones slipping 0.14%, the Nasdaq Composite declining 0.65%, and the S&P 500 shedding 0.49%. Vijayakumar, Chief Investment Strategist of Geojit Investments Limited, stated that US President Donald Trump's rhetoric and actions will continue to weigh on markets in the near-term.
No new information was available about RBI Governor Sanjay Malhotra's decision on interest rate, the weather in Bengaluru or Dehradun, or the Nifty IT index, FMCG, Realty, or the major laggard Coal India. The Nifty midcap 100 index saw higher selling pressure, down 0.54%. The Sensex gained 64 points, and Nifty edged up 16 points.
- The RBI's decision to maintain interest rates at 5.5% in August 2021 was influenced by increasing global trade tensions and their impact on India's economy, particularly in regards to business sectors like exports and the stock market.
- The RBI must consider the pressure caused by Trump's tariffs on the Indian stock market and export sectors, which in turn restricts the central bank's room for monetary stimulus until the macroeconomic outlook stabilizes.
- In the Indian equity market, while some sectors such as Nifty Bank and Coal India saw fluctuations, the Nifty IT index experienced significant losses, with Bharti Airtel leading the gainers and the Nifty IT index being the major loser.
- Despite foreign portfolio investors (FPIs) being net sellers, domestic institutional investors (DIIs) were net buyers of shares in the Indian stock market on a specific day, but there was no new information about the RBI Governor's decision on interest rates, weather conditions in certain cities, or the performances of specific stock market indices like Nifty IT, FMCG, Realty, or the major laggard Coal India.
