The bull run in the Indian stock markets came to a pause after the Reserve Bank of India (RBI) raised the repo rate for the second time in two months.
The Bombay Stock Exchange Sensex dropped more than 200 points to 37,373.08 on Thursday on heavy selling in metal, auto, banking, capital and realty stocks, amid sustained capital outflows by foreign funds, Press Trust of India reports. The repo rate, at which the central bank lends to other banks, was increased by 25 basis points on Wednesday and it now stands at 6.5%, the highest in two years.
Moreover, the decline in Asian stocks on renewed concerns over a US-China trade war also influenced the sentiment in India. The 30-share index had lost 84.96 points in Wednesday’s session.
Similarly, the National Stock Exchange NIFTY fell 72.80 points, or 0.64% to 11,273.40. Sectoral indices led by metal, auto, banking, capital goods and realty, falling by up to 1.30%.
After announcing the rate increase, RBI governor Urjit Patel said it was to ensure that the central bank didn’t drift away from its 4% inflation mandate and kept moving toward that target on a sustainable basis. He cited trade wars, uneven global growth and spiraling crude-oil prices as reasons for the increase.
However, some analysts feel the current rate increase will have limited short-term impact on the stock market, as the big focus for investors now is next year’s general election in India.