Indian equity markets came under heavy selling pressure on Thursday, October 8, as investors reacted to the Reserve Bank of India’s (RBI) shift towards a tighter monetary policy stance. The Sensex fell around 900 points to trade near 71,500, while the Nifty 50 slipped below the 22,250 mark during morning trade. Broader markets also remained weak, with midcap and smallcap indices declining around 0.8%.

1. RBI signals further rate hikes

The biggest trigger for the selloff was the RBI’s decision to raise the repo rate by 25 basis points to 5.50%, marking its first rate hike in nearly four years. More importantly, the central bank changed its stance from “neutral” to “calibrated tightening”. This signals that another rate hike remains possible if inflationary pressures persist.

Higher interest rates can increase borrowing costs for businesses and consumers and put pressure on equity valuations, particularly in rate-sensitive sectors such as real estate, autos and consumer companies.

2. Rising crude oil prices add to inflation concerns

Brent crude climbed 2.2% to around $102.5 a barrel as tensions around Middle Eastern supply routes and the Strait of Hormuz continued to support oil prices. Higher crude prices are a concern for India because the country imports a large share of its energy requirements. This could increase inflation and put additional pressure on the RBI’s policy outlook.

3. Continued FII selling

Foreign investors have remained cautious towards Indian equities. Persistent FII selling, combined with elevated US Treasury yields, has increased the attractiveness of fixed-income assets and kept pressure on Indian largecaps. Analysts expect this trend to continue until global yields and risk sentiment improve.

4. Weak global cues and earnings focus

Global markets have also remained cautious amid higher oil prices and concerns over interest rates. Investors are now turning their attention to the September-quarter earnings season, with TCS results due on Thursday. IT stocks were among the few gainers, while sectors such as realty, oil and gas and metals faced selling pressure.

Technical Outlook

The Nifty remains below the crucial 22,800 level, keeping the short-term trend weak. Immediate support stands at 22,500, followed by 22,300 and 22,180. The Sensex faces pressure below 73,000, while Bank Nifty needs to hold its recent support zone to avoid further weakness. A sustained recovery will require easing crude prices, lower bond yields and renewed FII buying.

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