RBI Hikes Repo Rate to 5.5%, Sensex and Nifty Drop Amid Global Pressures

On October 7, Indian stock markets experienced a notable decline following the Reserve Bank of India’s decision to increase the repo rate by 25 basis points to 5.5%, the first hike in nearly four years. The Sensex dropped by 529 points to an intraday low of 72,539.18, while the Nifty 50 index fell 191 points to 22,585.05. This move by the RBI’s Monetary Policy Committee (MPC) was anticipated, but the broader market reaction was influenced by several additional factors.

During the policy meeting held from October 5 to 7, the MPC unanimously agreed on the rate hike, simultaneously shifting its monetary stance to a 'calibrated tightening' approach. The Standing Deposit Facility rate was raised to 5.25%, while the Marginal Standing Facility and bank rates remained steady at 5.75%. RBI Governor Sanjay Malhotra emphasized that the increase was the outcome of a comprehensive evaluation of the macroeconomic environment and financial conditions. He also indicated that the near-term outlook does not favor any rate reductions, contributing to pressure on equity markets.

The market downturn was further influenced by external developments. Brent crude prices rose over 1% to approximately $102 per barrel following attacks by Yemen’s Iran-backed Houthi group on Saudi Arabia, raising concerns about crude supply security in the Middle East. Additionally, the yield on the US 10-year Treasury bond climbed to 5.31% from 5.27%, dampening investor sentiment globally. US President Donald Trump’s comments about American control over maritime traffic through the Strait of Hormuz added to geopolitical anxieties.

V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, noted that the 25 basis point increase was largely priced into the market already. Instead, he suggested that the RBI’s new stance and its outlook on the interplay between growth and inflation will have a more significant effect on investor behavior. Vijayakumar also highlighted that the interest rate differential between India and the US remains narrow. Given rising US yields and a stronger dollar, the RBI’s rate hike serves an important role in curbing capital outflows and supporting the Indian rupee.

On the sectoral front, market breadth was weak. Within the Sensex, gainers were limited to a few stocks including Kotak Mahindra Bank, Bharti Airtel, Bajaj Finance, Eicher Motors, and IndiGo. Conversely, the majority of constituents, including Titan, Bharat Electronics, Asian Paints, UltraTech Cement, Power Grid, and Bajaj Finserv, registered losses. The Nifty Bank and Nifty Financial Services indices each fell by more than 0.3%, while the Nifty Metal index led sectoral declines with a 1.5% drop. Nifty Auto, FMCG, Realty, and IT sectors also experienced losses ranging from 0.8% to 1.1%.

For investors, experts advise caution but discourage panic reactions. Vijayakumar recommends focusing not just on the rate hike itself but also on the broader monetary policy direction, inflation trends, US bond market movements, and currency fluctuations to understand future equity market responses. Nishchal Jain, Quant Researcher at Share.Market by PhonePe, suggests a disciplined approach that avoids abrupt selling or chasing rallies. He advises prioritizing high-quality large-cap stocks in banking, FMCG, automobile, and IT sectors while keeping cash reserves ready to capitalize on dips near key support levels.

The RBI’s rate hike is a significant policy shift after a long period of stability, reflecting the central bank’s intent to manage inflationary pressures amid evolving global and domestic challenges. Investors should carefully monitor ongoing economic indicators and geopolitical developments to navigate the current market landscape effectively.

About the Author
Pranati Deva is a seasoned financial journalist with over a decade of experience in market reporting. She is currently a Senior Sub Editor at LiveMint, known for her clear, data-driven coverage of stock markets, currencies, and commodities. Her background includes work with major Indian business news outlets and a strong academic foundation from the Symbiosis Institute of Media and Communications and Hansraj College, University of Delhi.