RBI Raises Repo Rate to 5.50% in First Hike Since 2023; Equities See Volatility
The unexpected shift to 'calibrated tightening' and higher inflation forecasts signal no near-term rate cuts, influencing market direction amid elevated crude oil prices.
The story
Indian equity markets extended their gains on Tuesday, October 6, with the Sensex climbing 685.34 points (0.95%) to close at 73,067.81, and the Nifty 50 advancing 220.35 points (0.98%) to settle at 22,776.10. [3, 7, 12] This rally was supported by a decline in crude oil prices below the $100 per barrel mark and buying interest in banking stocks and Reliance Industries. [12, 32] Trent Ltd. was a notable gainer, surging 12.78% among Sensex constituents. [7, 32] Foreign Institutional Investors (FIIs) remained net sellers, offloading equities worth ₹2,961.30 crore on Tuesday, while Domestic Institutional Investors (DIIs) provided support with net inflows of ₹5,088.92 crore. [9, 18, 34]
However, market sentiment turned cautious on Wednesday, October 7, ahead of the Reserve Bank of India's (RBI) monetary policy decision, with both benchmark indices opening lower. [5, 9, 17] The Sensex initially fell over 450 points, and the Nifty declined more than 160 points. [5, 9] The RBI's Monetary Policy Committee (MPC) unanimously raised the repo rate by 25 basis points to 5.50%, marking the first hike since February 2023. [20, 27, 39] Following the announcement, markets remained volatile, paring some losses but still trading in negative territory. [12, 20, 27] RBI Governor Sanjay Malhotra indicated that rate cuts are unlikely in the near term, with future policy actions expected to be either a hike or a pause. [20] Brent crude prices also rebounded, trading above $101 per barrel. [5, 9, 27]
The tape
| Instrument | Last | Change |
|---|---|---|
| Nifty 50 | 22,691.55 | -84.10 (-0.37%) |
| Sensex | 72,945.42 | -122.39 (-0.17%) |
| Bank Nifty | 55,128.40 | +414.30 (+0.76%) |
| USD/INR | 96.57 | +0.22 |
| India VIX | 13.56 | -8.26% |
Flows & data
| Item | Reading | Read |
|---|---|---|
| FII Net Flows | ₹-2,961.30 crore (Oct 6, 2026) | Foreign Institutional Investors remained net sellers in the cash segment. |
| DII Net Flows | ₹+5,088.92 crore (Oct 6, 2026) | Domestic Institutional Investors were net buyers in the cash segment. |
| FY27 GDP Growth Forecast | 7.1% (Oct 7, 2026) | RBI raised its GDP growth projection for the current financial year. |
| FY27 CPI Inflation Forecast | 5.2% (Oct 7, 2026) | RBI revised its CPI inflation forecast upwards. |
IPOs & the primary market
In the primary market, the SME IPO of R.K.Fashion remains open for subscription until October 7, with a price band of ₹77-₹82 per share. [36, 35] Grey market premium (GMP) for R.K.Fashion was noted at ₹15, indicating an estimated gain of 18.29%. [36] Other SME IPOs, including Acme India Industries, TNA Solutions, and Paramount Syntex, closed for subscription on October 6. [35, 36] Looking ahead, HD Fire Protect is slated to open its IPO between October 13-15, while Jio Platforms is expected to launch its IPO from October 21-23. [36]
Valuation watch — India & global
India's market valuations are under scrutiny following the RBI's decision to hike the repo rate and signal a 'calibrated tightening' stance, with Governor Sanjay Malhotra indicating that rate cuts are unlikely in the near term. [20, 27, 39] This, coupled with upward revisions to inflation forecasts, suggests that equities could face valuation compression and consolidation in the short term. [20] Globally, elevated crude oil prices, with Brent trading above $101 a barrel, and rising US 10-year bond yields, which climbed to 5.31%, continue to weigh on investor sentiment. [27] These macroeconomic factors, combined with the RBI's hawkish outlook, are expected to influence market multiples, shifting focus towards companies with strong earnings visibility and domestic cash generation capabilities. [20]
What we'll be watching
- Start of Q2 earnings season, with Tata Consultancy Services (TCS) reporting on October 8.
- RBI Governor Sanjay Malhotra's detailed commentary on the future path of monetary policy.
- Opening of HD Fire Protect IPO (October 13-15).
- Opening of Jio Platforms IPO (October 21-23).
- Movements in Brent crude oil prices amid global geopolitical developments.
- Foreign Institutional Investor (FII) flow trends in Indian equities.
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