RBI increased the Repo rate from 4% to 4.4%. How will Sensex and Bank Nifty respond?
- Repo Rate Impact May Create Downward Pressure in the Indian Stock Market
- Sensex May Keep Dropping
- Impact on Bank Nifty
Interact with the dashed blue word and green spot on images to get additional details and explanations.
A term definition or explanation will be here.
Factors Behind the RBI’s Repo Rate Hike
Repo Rate Impact May Create Downward Pressure in the Indian Stock Market
The increase of the Repo rate by 40 bps from 4% to 4.4% may have a large-scale impact on the economy of India. Generally, when the Repo rate increases, loan interest rates also rise. As a result, corporations have to pay more on the funds they borrow for business expansion. Therefore, it reduces their profitability and earnings per share. Consequently, stocks go down. Similarly, retail loans for homes, cars, education and other consumer purposes also become more expensive and cause weaker consumer spending and lower GDP.
Therefore, it will be safe to state that the Repo rate increase may have a negative impact on the Indian economy and stock market. Still, the RBI took that step. The primary reason is that it wanted to halt inflation growth.
Since 2018, it’s the first time the RBI has hiked the Repo rate to cool down the increasing inflation. Essentially, increasing the Repo takes money out from the economy. Naturally, it leaves less of it for the consumers and corporations to spend. As a result of that, inflation normally goes down.
Now, let’s check how Sensex and Bank Nifty have reacted to that so fat.
Sensex May Keep Dropping
Sensex may fall further. On the daily time frame, Sensex of 55,000, it may drop to the secondary support range of 52,500-53,200 and further below in case of a stronger correction.
We believe Sensex will keep going down in the upcoming weeks. While range-bound trading in the downward direction is also a possibility, upside movement is unlikely.
Impact on Bank Nifty
The Indian banking industry may go into a downtrend. The Indian banking Industry may most feel the impact of the RBI’s Repo rate increase. Mainly, the hike may push the country's commercial banks to increase the interest rates on the loans they provide. Bank Nifty may follow the Sensex’s downtrend. The range of 34,000-34,200 may serve as a key support level. If Bank Nifty breaks it on the way downwards, the next downward target of 32,250 may be challenged in the upcoming weeks.
Risk warning: The content of the article does not constitute investment advice and you are solely responsible for your trading activity and/or trading results.
Repo rate is the rate at which a country’s Central Bank provides loans to commercial banks against government securities.
Sensex is a benchmark index made of the 30 largest and most actively traded stocks on the Bombay Stock Exchange that serves as a gauge of the Indian economy’s well-being.] has started forming a downtrend. If it breaks the nearest f[support level]=[Support level is a price level or range that is expected to halt the downtrend because of a higher demand expected at those levels.
Trading in a range occurs when the price keeps fluctuating within the same price channel for an extended period.
Bank Nifty represents the 12 most liquid and large-capitalization banking sector stocks traded on the National Stock Exchange, or NSE.