Markets turn cautious ahead of RBI MPC meet

Mumbai: The equity markets snapped their three-day winning streak amidst selling pressure in interest rate sensitive bank and real estate stocks as investors turned cautious at higher levels ahead of the Reserve Bank’s monetary policy meeting next week.

With global crude oil prices remaining high and rupee witnessing weakness against the US dollar, a section of market participants are expecting a pre-emptive strike by RBI in the form of a 25 basis point hike in rates next week.

The Sensex slumped 216.24 points or 0.61 per cent to end the day at 34,949.24 while the Nifty fell 55.35 points or 0.52 per cent to close the session at 10,633.30.

“June (MPC meeting) remains a close call. We assign a 40 per cent probability to the RBI pre-emptively hiking rates by 25 basis points in June, followed by another 25 bps hike in August,” said analysts at Nomura.

However, they have assigned a 55 per cent probability of RBI leaving rates unchanged, but shifting its stance from ‘neutral’ to ‘withdrawal of accommodation’.

Apart from targeting inflation, DBS Bank in a note said that RBI finds itself battling a weaker currency, rising bond yields and higher volatility in the domestic financial markets.

“These factors validate our expectation that the RBI will turn hawkish in June (small probability of a pre-emptive hike) before paving the way for a 25 bps increase in August,” it said.

On Tuesday, the shares of ICICI Bank slumped 2.87 per cent while that of SBI, IndusInd Bank and Yes bank dropped 2.70 per cent, 2.08 per cent and 1.78 per cent respectively.