RBI MPC update: Rate cut fails to cheer markets
Devarsh Vakil – Head of Prime Research, HDFC Securities:
In a watershed moment for India’s monetary landscape, under the leadership of the new governor Mr. Malhotra, Reserve Bank of India (RBI) announced a significant shift in its policy framework on Friday, effecting a reduction in the policy repo rate by 25 basis points to 6.25 per cent – marking its first such intervention in half a decade.
Lack of immediate liquidity enhancing measures and status quo on stance disappointed the markets.
The Nifty extended its losing streak for a third consecutive session. The RBI’s policy decision day saw extreme volatility, with the index swinging over 800 points before ultimately closing down 43 points (0.18%) at 23559.95. Despite this daily dip, the Nifty still managed a 0.33% gain for the week, its second consecutive week of positive movement.
The Rupee strengthened by 16 paise, recovering from all-time low to 87.42 against the dollar. Nifty Midcap 100 outperformed with a 0.2% gain, the Nifty Smallcap 100 lagged, declining 0.29%. Market breadth was negative, with declining shares outpacing advancing shares (0.63 advance-decline ratio).
Metal, Consumer Durables, and Auto led the gains, while PSU Banks, FMCG, and Oil/Gas were the weakest performers.
Technically, after a 250-point pullback from the intra-week high of 23807, the Nifty has found support at the 11 and 20-day EMAs (23465 and 23440, respectively). A sustained move above 23700 could pave the way for a retest of the 23807 resistance, followed by the 24000-24100 zone. Conversely, the 23400-23465 range is expected to provide support on the downside.
daily derivatives and technical analysis quotes from the Analysts of SAMCO Securities for media dissemination.
Derivatives Analysis
Nifty Stuck in a Tug of War; Awaits Breakout
Dhupesh Dhameja, Derivatives Analyst, SAMCO Securities
Nifty index kicked off the session with a flat opening, as market participants remained cautious ahead of the RBI Monetary Policy announcement later in the day. Despite the event-driven anticipation, the index failed to establish a definitive directional trend, grappling with heightened intraday volatility. Eventually, it settled at 23,559.95, slipping 0.18% (-43.40 points), underscoring the presence of a strong resistance zone at elevated levels. Despite brief intraday gains, persistent selling pressure dominated, reflecting a gradual decline in investor confidence.
On the daily timeframe, the index remains trapped between the 20-day and 50-day exponential moving averages (EMAs), forming a narrow trading range with stiff resistance at both ends. Furthermore, this marks the third consecutive negative close, emphasizing the necessity of a decisive breakout above 23,800 to reignite bullish sentiment. The support zone remains well-guarded near the 23,400–23,350 region (20-EMA), while the 23,800–23,850 supply zone—aligned with the prior swing high—continues to act as a major hurdle. A breakout on either side of this congestion zone is required for a clear directional move. Notably, the Relative Strength Index (RSI) remains above 50, signalling a marginal bullish inclination despite the lacklustre price action.
Options Market Insights:
Options data indicates a moderately bearish undertone, as call writers maintain an edge over put writers, signalling a gradual shift toward seller dominance. The 24,000-call strike saw an aggressive spike in open interest (84.81 lakh contracts), reaffirming it as a formidable resistance level. On the flip side, significant put writing at the 23,000 strike (41.82 lakh contracts) underscores strong downside support. Fresh call additions across 23,600–24,000 further reinforce resistance, while put unwinding at lower strikes hints at bearish realignment. Meanwhile, the Put-Call Ratio (PCR) declined to 0.67 from 0.85, reflecting a gradual shift towards bearish sentiment. The ‘Max Pain’ level at 23,600 indicates muted downside risk despite volatile swings.
Volatility Trends:
India VIX, a key measure of market fear, climbed 3.46% to 13.68, hinting at marginally increased uncertainty. However, with the VIX consistently trading below the crucial 15-level, overall market sentiment remains cautiously optimistic yet measured.
Market Outlook:
Nifty index continues its sideways movement, hovering within a well-defined range, with resistance at the 50-day EMA and support at the 20-day EMA. Persistent selling pressure at higher levels has dimmed the bullish outlook, reinforcing the ongoing consolidation phase. As long as the index remains confined to this tight trading band, directional momentum will be subdued, and volatility is expected to stay elevated.
The 23,800–23,850 resistance zone, strengthened by fresh call writing and a descending trendline, serves as a major barrier to further upside. Meanwhile, the 23,400–23,350 support region, actively defended by aggressive put writers, remains critical to sustaining the current range. As the market remains range-bound, a “Range Trading” strategy is likely to be the preferred approach, with a decisive breakout on either side determining the index’s trajectory for the coming week.
Nifty Bank Stuck in a Tight Range; Breakout Above 50,500 Holds the Keys
Nifty Bank index kicked off the session with a flat start, navigating through heightened volatility amid the RBI Monetary Policy announcement. Despite the event-driven backdrop, the index failed to establish a clear trend and remained indecisive throughout the day. Closing at 50,158.85, it registered a marginal drop of 0.44% (-223.25 points), reflecting sustained selling pressure at higher levels. Intraday gains fizzled out as sellers capitalized on minor upticks, underscoring a cautious sentiment in the market.
On the daily timeframe, the index remains trapped within the 50,500–49,700 range, encountering formidable resistance at the upper end while finding support at lower levels. A decisive breakout above 50,500 is essential for bulls to reclaim control. Strong demand persists around the 49,700–49,650 zone, aligned with the 20-day EMA, while the 50,500–50,600 region—previously a support—has flipped into a major resistance zone. A breakout beyond this range will be instrumental in dictating the next directional move. The Relative Strength Index (RSI) hovering above 50 suggests a mild bullish inclination, albeit within a lacklustre price structure.
Options Market Insights:
Options data signals a moderately cautious undertone, with call writers maintaining a slight edge over put writers, indicating renewed selling pressure at higher levels. The 52,000-call strike witnessed a sharp surge in open interest (18.79 lakh contracts), reaffirming it as a solid resistance zone. Meanwhile, notable put writing at the 49,000 strike (13.98 lakh contracts) highlights strong downside support. Additional build-up of call options from 50,500 to 51,000 strengthens resistance, whereas put unwinding at lower strikes hints at a potential bearish readjustment. The Put-Call Ratio (PCR) remains unchanged at 0.85, indicating a bearish undertone, while the “max pain” level at 50,400 suggests limited downside risk despite ongoing fluctuations.
Market Outlook:
Nifty Bank index continues to hover within a tight consolidation zone, sustaining above the breakout level of the Double Bottom pattern. However, persistent selling at higher levels dampens the bullish momentum. The index faces stiff resistance at 50,500–50,600, where fresh call writing has intensified. Meanwhile, the 50,000–49,700 support zone remains pivotal, reinforced by aggressive put writers defending their positions. Until the index escapes this congestion zone, a range-bound trading strategy is likely to remain dominant. A decisive breakout in either direction will dictate the trajectory for the upcoming sessions.
Technical Analysis
Nifty Sustains Uptrend with Higher Highs
OM Mehra, Technical Analyst, SAMCO Securities
Nifty ended the session at 23,559.95, down 0.18%, yet maintaining its strength on the weekly basis, closing 0.33% higher. Notably, the previous resistance at 23,430 has now transformed into a support level, where Nifty formed a hammer candle on the daily chart, signalling potential bullish momentum.
The index continues to exhibit a higher high, higher low structure, reaffirming the sustainability of its uptrend. Key support levels are positioned at 23,400, followed by 23,350, while resistance remains at 23,850. Meanwhile, short-term moving averages gradually align on the higher side, reinforcing the positive sentiment.
The India VIX cooled off by 3.46%, settling at 13.69, providing much-needed stability. Following trends, a buy-on-dip strategy remains favorable for the upcoming sessions.
Nifty Bank settled at 50,158.85, declining 0.44% in the session, yet posted a 1.32% gain weekly, underscoring its underlying resilience. The index maintains a higher high, higher low structure, signalling a sustained bullish undertone.
Crucially, Nifty Bank is holding firm above the 38.2% Fibonacci retracement level at 50,120, reinforcing the strength. The immediate hurdle stands at 50,650, and a decisive breakout beyond this zone could open the door for an extended move towards 51,500.
With the broader setup remaining constructive, the near-term outlook skews neutral to positive, with price action around key levels dictating the next directional move.
RBI’s MPC meet by Umeshkumar Mehta, CIO, SAMCO Mutual Fund.
RBI does a Balancing Act; Cuts rate by 25 bps
In a landmark decision, the Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) has reduced the benchmark interest rate by 25 basis points, the first cut in five years, aiming to stimulate economic growth while closely monitoring inflation. This move aligns with global central banks, which have been easing rates since last year to counter economic slowdowns. However, this decision is expected to widen the gap between US and Indian bond yields, potentially accelerating capital outflows from India. With US bond yields on an upward trajectory, the Indian Rupee (INR) is facing added depreciation pressure, exacerbating currency risks. Given these challenges, the rate cut could prove to be a balancing decision on currency stability and stimulating consumption.
Please find below quote for all media dissemination on the RBI Monetary Policy by Mr. Dhiraj Relli, MD & CEO, HDFC Securities.
“In a watershed moment for India’s monetary landscape, under the leadership of the new governor Mr. Malhotra, Reserve Bank of India (RBI) announced a significant shift in its policy framework on Friday, effecting a reduction in the policy repo rate by 25 basis points to 6.25 per cent – marking its first such intervention in half a decade.
The monetary policy committee‘s decision reflects a delicate balance between fostering economic growth and maintaining price stability, whilst simultaneously addressing the emerging challenges in the global economic landscape. This rate cut coupled with recent income tax sops heralds particularly auspicious tidings for prospective homeowners. This calculated move is expected to catalyse credit growth across sectors, particularly benefiting SMES whilst providing much-needed impetus to the real estate sector through reduced borrowing costs.”
