Is the Stock Market Showing Resilience Amid RBI's Rate Cut?

Mumbai, June 7 (NationPress) Following a week of consolidation, the domestic market has demonstrated remarkable resilience despite ongoing worries about tariff conflicts and geopolitical tensions, analysts reported on Saturday.

For the third week in a row, the markets consolidated but managed to finish higher by nearly one percent, buoyed by favorable domestic indicators.

After a week of limited movement, the benchmark indices experienced a significant surge on Friday, with the Nifty closing at 25,003 and the Sensex at 82,118.99.

“The key highlight of the week was the unexpected policy announcement by the RBI. The central bank executed a surprising 50 bps cut in the repo rate along with a 100 bps reduction in CRR, indicating a strong commitment to pro-growth policies. Moreover, the policy stance shifted from 'accommodative' to 'neutral' sooner than anticipated,” stated Ajit Mishra, SVP, Research, Religare Broking Ltd.

By initiating its easing measures proactively, the RBI has reaffirmed its dedication to revitalizing domestic growth amidst global uncertainties. While such assertive action was initially expected to occur gradually, this decisive move bolsters confidence in the central bank’s intent to foster economic recovery while managing inflation risks.

This week, sector performance was predominantly positive, with rate-sensitive sectors experiencing robust buying interest. Realty, auto, and banking stocks spearheaded the rally, reflecting an optimistic outlook for credit growth and consumer sentiment. Financials and NBFCs also benefitted, as lower interest rates are anticipated to improve borrowing conditions.

On the contrary, IT stocks lagged due to ongoing global uncertainties, particularly in the U.S. and European markets. In the broader spectrum, both midcap and smallcap indices outperformed the benchmarks, demonstrating a risk-on sentiment among investors, with gains ranging from 2.8 percent to 4 percent.

According to Vinod Nair, Head of Research, Geojit Investments Ltd, supported by favorable macro indicators such as strong Q4 GDP, GST collection, and a promising monsoon, investors concentrated on domestically focused and interest-sensitive sectors like financials, real estate, retail, and FMCG, which exhibited strength due to substantial institutional inflows.

Profit booking was observed throughout the week due to persistent global uncertainty. Mid and small caps generally outperformed large caps, driven by improved earnings and valuations.

“While China's rare earth restrictions pose long-term risks and investors await the inflation data from the U.S., the aggressive RBI rate cut, supported by cooling inflation and a stable GDP outlook, is likely to enhance investor confidence amidst ongoing global uncertainties,” Nair pointed out.

Looking ahead, market participants will keep an eye on crucial macroeconomic data for further insights. High-frequency indicators such as CPI inflation will be closely monitored to assess demand trends and the central bank's forthcoming actions, experts noted.