Markets: As LIC’s mega-IPO opens, RBI ups repo rate, Sensex tanks 1,300 points, Nifty plunges 391
Virendra Pandit
Mumbai: In a surprise move, the Reserve Bank of India on Wednesday suddenly announced a repo rate hike to contain inflation, which led to a market plunge on a day the mega-IPO of the country’s largest insurer, Life Insurance Corporation (LIC), opened.
The markets tanked heavily after, in an unscheduled address, RBI Governor Shaktikanta Das announced that the central bank’s Monetary Policy Committee (MPC) had unanimously voted to increase the repo rate by 40 basis points (bps) to 4.40 percent. He said the central bank’s stance remains accommodative.
The RBI also raised the cash reserve ratio (CRR) limit by 50 bps to 4.5 percent with effect from May 21, which will suck out Rs 87,000 crore from the system.
The RBI’s move stunned the market, ahead of the expected US Fed rate hike. The MPC held an off-cycle meeting between May 2 and 4 to decide on hiking the repo rate amid concerns about the sharp uptick in inflation, which is ruling over its upper band of 6 percent since January 2022, amid progress in economic activity.
The RBI Governor said we should see the rate hike as a reversal of the May 22, 2020 repo rate cut from 4.40 percent to 4 percent.
After the fresh move, the standing deposit facility increased from 3.75 percent to 4.15 percent and the marginal standing facility from 4.25 percent to 4.65 percent.
The Government Securities (G-Sec) market reacted negatively to the repo rate increase and the price of the 10-year benchmark G-Sec crashed by about Rs. 1.90 intraday, with its yield shooting up by 28 bps.
The impact of the RBI’s sudden announcement was seen on the bourses immediately. The markets were already on tenterhooks awaiting the US Federal Reserve meeting outcome later tonight, wherein a 50 bps rate hike is expected.
The central bank’s hike sent sensitive shares into a tailspin, dragging down the key benchmark indices. The BSE Sensex tumbled to a low of 55,502 and ended 1,307 points lower at 55,669. The NSE Nifty plunged 391 points to 16,678.
Rate-sensitive shares, ranging from sectors like banking, NBFCs, and housing finance, to automobile and real estate, logged heavy losses in trade.
Market experts reacted sharply to the RBI’s move on the day the LIC IPO opened. While welcoming the rise in repo rate by 40 bps, and CRR by 50 bps to manage inflation, the timing was not good, they said. The 1,300-point crash in Sensex soured the investors’ sentiments on the opening day of India’s largest IPO.
Meanwhile, the LIC’s mega-IPO opened on Wednesday for the subscription. By the end of the trading day, the issue was subscribed 50 percent, with the policyholder and employee categories seeing the highest subscription at 1.68 times and 89 percent, respectively. The retail quota had received bids for up to 52 percent of the limit.
The offer period between May 4 and May 9 will remain open for bidding on Saturday, May 7, as well.
