Rate hike tremors

Nifty50: 16,356 ▼ 60 (-0.3%)
Sensex: 54,892 ▼ 214 (-0.3%)

Wassup, people!

Did you know that scientists are training rats to act as first responders during earthquakes? They are being equipped with tiny backpacks and microphones so that they can lead humans to trapped earthquake survivors.  

Speaking of earthquakes, tremors were felt in the markets today. The RBI announced a 0.5% rate hike today to tackle inflation. While the markets were expecting this, they were still jittery. More on that later.

• After a strong start, markets swung between positive and negative, before closing lower.
• In all, 28 of the Nifty50 stocks closed in the red.
• RBI’s decision to hike the interest rate was largely expected, but indices were dragged down by Reliance and ITC.

Among the Nifty sectoral indices, Realty (+1.8%) and Media (+1.4%) gained the most, while FMCG (-1.0%) and Oil and Gas (-0.9%) were the top losers.

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What’s trending

⭐ World Bank cuts India’s GDP forecast 📈

The World Bank has slashed India’s GDP growth forecast to 7.5% from 8% for the current financial year, citing reasons like rising inflation, geopolitical tensions and supply chain disruptions. In April 2022, the World Bank had trimmed the forecast from 8.7% to 8%. However, despite the downward revision, the forecast still remains above RBI’s growth forecast of 7.2%.

⭐ Realty stocks rally 🏡

DLF (NSE): 325 ▲ 6.9 (+2.1%); Macrotech (NSE): 1,098 ▲ 51 (+4.9%)

Shares of leading real estate companies like DLF, Oberoi Realty and Macrotech Developers were up by over 3% on Wednesday. The RBI has announced several measures to improve credit flow and boost demand for real estate. It has increased the upper limit of individual housing loans disbursed by urban and rural co-operative banks. Moreover, the central bank has permitted state & district cooperative banks to extend finance up to 5% of their total assets to developers of commercial and residential projects.

⭐ Lupin gets drug approval in the US 💊

Lupin (NSE): 612 ▲ 2.8 (+0.4%)

Drug maker Lupin has received a tentative approval from the US health regulator USFDA to market Ivacaftor tablets in the US. This drug is used to treat cystic fibrosis. As per IQVIA MAT March 2022 data, Ivacaftor tablets had annual sales of $109 million in the US. The product will be manufactured at the company's Nagpur facility.

⭐ Weak start to monsoon ☔

As per the data from the India Meteorological Department (IMD), India has received 14.5mm of rainfall, against a normal 23.1mm in the first week of June. The southwest monsoon has been nearly 37% ‘below normal’ in this period. Meanwhile, in Kerala, monsoon rain is 48% ‘below normal’, while in Puducherry, it is 56% ‘above normal’. Notably, India gets around 16.54cm of the estimated 87cm rainfall in June.

⭐Credit cards get UPI boost  💳

SBICARD (NSE): 783 ▲ 18.8 (+2.4%); PAYTM (NSE): 613 ▼ 4.1 (-0.6%)

In its monetary policy announcement on Wednesday, the RBI has proposed to link credit cards to the UPI platform. The move is expected to provide convenience and additional payment options to consumers. The implementation will begin with Rupay credit cards. Following the announcement, shares of credit card and payment companies like SBI Cards, PayTM and Infibeam Avenues reacted positively and were up by over 3%.

In Focus

RBI’s rate pill for inflation pain

If you’re paying EMIs, or are planning to take a new home or auto loan, we have some not-so-good news for you. Amid rising inflation, the Reserve Bank of India’s Monetary Policy Committee (MPC) met this week to decide on interest rates. Here are the key takeaways from the meeting:

Interest rates hiked

As expected, the MPC hiked the repo rate by 0.5% to 4.9% to counter the soaring inflation. Repo rate is the rate at which the RBI lends money to commercial banks. This is the second rate hike in five weeks. In May this year, the central bank had opted for an off-cycle rate hike of 0.4%. It was the first rate hike since August 2018. 

Why rates were hiked

The MPC has been focused on economic growth since 2020, when the pandemic brought the country to a standstill. However, the RBI has now begun to prioritise inflation reduction, as fuel and food prices have skyrocketed. 

Owing to this, the MPC decided to hike rates and said it will take steps to reduce liquidity in the economy. 

Retail inflation projections

The MPC has raised the retail inflation forecast to 6.7%. This is much higher than the 5.7% forecasted in its April meeting. The projection has been raised considering tense geopolitical conditions and rising commodity prices. It expects crude oil to average at $105 a barrel this year. 

GDP growth forecasts

The RBI has retained its FY23 GDP growth forecast at 7.2%. The MPC said that the domestic economic activity is picking up, and the rural consumption is also expected to increase on expectations of a normal monsoon. 

IPO corner

The IPO-bound fintech player Mobikwik is reportedly in talks with investors to raise $100 million through the equity route. The money will be used for marketing, hiring and acquisitions. The management of Mobikwik, which deferred its IPO last year, has said that it is planning to launch the public issue at an opportune time. 

Good to know

What is the cash reserve ratio?

Cash Reserve Ratio (CRR) is a minimum percentage of the total deposits that commercial banks have to hold as reserves. This can be kept aside in cash or as deposits with the RBI. The CRR is maintained to ensure banks don't run out of cash to meet the payment demand of their depositors. It is also a crucial monetary policy tool to control money supply in the economy. The CRR currently stands at 4.5%.

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