Indian shares drop as RBI signals tight policy ahead

Indian shares inched lower on Thursday, weighed by auto and consumer stocks, after the Reserve Bank of India (RBI) maintained key policy rates as expected, but hinted at tight monetary conditions to fight inflation.

The blue-chip Nifty 50 index was down 0.11% at 18,706 as of 12:30 p.m. IST, while the benchmark S&P BSE Sensex fell 0.08% to 63,095. Both the indexes were up 0.12% ahead of the RBI rate decision and rose to notch gains of nearly 0.30% after the decision, before reversing gains.

The RBI's monetary policy committee (MPC) left the repo rate at 6.50% for a second straight meeting but signalled that monetary conditions will remain tight for some time.

"The markets were expecting a tad softer tone considering a softer domestic inflation and improved current account deficit," said Sujata Guhathakurta, president-debt capital market and infrastructure financing, Kotak Mahindra Bank.

Nine of the 13 major sectoral indexes declined, with the fast moving consumer goods (FMCG), IT and auto sectors losing nearly 1% each. Financials, which stand to benefit most from higher rates, rose 0.1%. On the other hand, shares of the more rate-sensitive realty index slid 1.66%.

Macrotech Developers fell over 2.5%, also weighed down by block deals."We do not believe a policy pivot, where RBI would start signalling cuts, is coming soon," said Rahul Bajoria, managing director and head of emerging markets (EM) Asia (ex-China) Economics at Barclays.

The Indian rupee remained mostly unchanged after the policy decision, while the benchmark 10-year bond yield rose to 7.01%.Among individual stocks, JSW Steel jumped nearly 5% after Investec upgraded the stock to "buy". The stock was the top gainer in the metals index, which gained 0.3%.