Dalal Street Corner: Market extends losses ahead of RBI MPC meet outcome, ends nearly 1% lower; what should investors do on Wednesday?

Ahead of the Reserve Bank of India's (RBI) monetary policy committee meeting (MPC) outcome on Wednesday, the Indian market ended nearly one per cent lower on Tuesday. The MPC review meeting is being held between June 6-8. RBI Governor Shaktikanta Das will announce the decision of the MPC after deliberations on Wednesday. 

Experts and economists have hinted at a 35-40 basis points (bps) hike. Even the RBI governor had indicated that there may another hike in the repo rate in June policy. Zee Business Managing Editor Anil Singhvi has said that rate hike is inevitable, but it is RBI Governor's commentary that would be key monitorable.  

Meanwhile, the market has been trading cautiously ahead of the RBI announcement, and has closed in the red on two occasions this week, and three in a row in total. On Monday, benchmarks Nifty50 and Sensex ended with 0.92% and 1.02% cuts.  

On the sectoral front, Nifty Consumer Durables, IT and FMCG declined the most, while oil & gas and auto gained in a weak market. Besides, banking and financial indices too remained under pressure ahead of the RBI policy outcome.  

Here is what experts say on current trends in the market  

Vinod Nair, Head of Research at Geojit Financial Services  

The volatility in the market is forcing investors to stay sidelined ahead of the RBI’s policy announcement. The market has factored a hike up to 50bps of repo rate & CRR, but any further stricter measures to clamp liquidity due to lingering inflation will have ramifications on the market trend.  

Apart from the monetary measures, the RBI’s guidance on growth and inflation forecast will determine the market trend" 

Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities. 

The Nifty Bears took control once again leading to a fall in the index towards the crucial support zone 16,400-16,350. The volatility is likely to continue ahead of the RBI policy and a clear-cut direction will be visible post the outcome.  

The upside resistance is placed at the 16,600-16,800 zone where heavy call writing is visible.  

The Bank Nifty index continues to witness selling pressure ahead of the RBI policy and ends on a negative note. The index is stuck in a broad range between 34,500-36,000 levels and a break on either side will lead to further trending action. The undertone remains weak as long as it stays below the level of 36,000 where the highest open interest is built up on the call side  

Gaurav Ratnaparkhi, Head of Technical Research, Sharekhan by BNP Paribas 

The Nifty opened on a negative note on June 7 and witnessed follow through selling subsequently. On the way down, it breached the swing low of 16438 and filled up a gap area on the daily chart, which was created in the last week of May.  

The Nifty went on to breach 16400 on an intraday basis, however, received buying support in the lower territory. Consequently, the index managed to hold on to the key level of 16400 on a closing basis. Thus, the index still holds potential for a bounce back in the coming sessions.  

On the higher side, 16500 is the initial hurdle beyond which larger bounce will be on the cards. Fresh long position can be initiated once the Nifty crosses 16500 on the upside.

Ajit Mishra, VP - Research, Religare Broking Ltd

Markets inched lower and lost nearly a percent amid mixed cues. Initially, weakness in the global markets was weighing on the sentiment and continued selling in banking, FMCG and IT majors kept the pressure intact till the end. The focus will be on MPC’s meeting outcome on Wednesday amid the expectation of a further rate hike.

Besides, their outlook on growth and inflation holds importance. Traders should maintain extra caution in rate-sensitive and prefer less volatile stocks for day trade.  On the index front, the bias would again turn negative below 16,300 else consolidation would continue with the upper band at the 16500-16700 zone. 

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 

Two crucial numbers coming this week are significant - RBI's rate hike tomorrow and the inflation rate in the US expected on Friday. RBI's rate hike is a foregone conclusion; the only unknown is the quantum of the rate hike. Even if the rate hike is by a steep 50bp, the market is unlikely to be impacted much since frontloading of the rate hike will be more effective in anchoring inflation expectations. 

The market direction is likely to be influenced more by inflation in the US, which, in turn, will decide how far the Fed will go in raising rates. This will be the key determinant of possible 'risk on' or 'risk off' in equity markets globally.  

A rising rate scenario will improve the margin of the banking sector since deposit rates lag lending rates. The most attractively valued segment in the market now is financials, particularly banking. 

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)