Market jitters follow RBI rate hike, but a rally returns—should you invest fresh capital now or wait?

RBI Repo Rate Hike: Wednesday proved to be a roller-coaster ride for stock market investors. As soon as news of the Reserve Bank's decision broke in the morning, the market witnessed a sharp, sudden drop. The Sensex tumbled by 547 points, and the Nifty also saw a significant slide.

During trading, the Sensex fell to a low of 72,520.73, while the Nifty dropped to 22,578.25. However, buying interest returned at these lower levels. The Sensex recovered to reach 72,969.57, and the Nifty touched the 22,701.6 mark. Around 11:30 AM, the Nifty was trading at 22,682 and the Sensex at 72,904.

A key projection by the Reserve Bank played a major role in this market recovery. The central bank raised its GDP growth forecast for the country for the 2027 fiscal year by 40 basis points to 7.1%. RBI Governor Sanjay Malhotra stated that despite global turmoil, India's economy remains robust. This strong growth outlook immediately bolstered investor confidence.

Decision to raise borrowing costs after four years

The RBI's Monetary Policy Committee met from October 5 to 7. All members unanimously decided to hike the repo rate by 25 basis points. Consequently, the rate has risen from 5.25% to 5.5%. This marks the first interest rate hike in four years, driven by mounting inflationary pressures. The central bank has also hardened its stance, shifting to a policy of ‘calibrated tightening.’ The Standing Deposit Facility was raised to 5.25%, while the bank rate was kept unchanged at 5.75%. The Governor also clearly indicated that there is no expectation of interest rate cuts in the near future. Consequently, the market faced significant pressure during the early trading sessions.

**Pressure from Global Factors**

It was not just domestic decisions; news from abroad also rattled the market. Houthi rebels from Yemen attacked Saudi Arabia, raising concerns about crude oil supplies. Brent crude surged by over 1%, nearing $102 per barrel. Additionally, the US 10-year bond yield rose from 5.27% to 5.31%. Statements by US President Donald Trump also created some global tension.

V.K. Vijayakumar of Geojit Investments notes that the market had already anticipated a 25-basis-point hike. The crucial point is that raising rates had become necessary to prevent foreign investors from withdrawing funds, especially given the strengthening US dollar. In terms of sectors, Kotak Bank, Bharti Airtel, and Bajaj Finance saw gains, whereas heavy selling was observed in stocks like Titan, Asian Paints, and UltraTech Cement.

**Expert Opinion on New Investments**

The question now arises: what steps should investors take at this juncture? Should they deploy fresh capital seeing this rally, or should they exercise caution? Nischal Jain, an expert at Share.Market by PhonePe, advises that investors should neither sell their shares in a panic nor chase sudden market surges to invest their money. Experts believe that one should avoid rushing to deploy fresh capital at this juncture. Investors ought to keep some cash in reserve. When the market drops near a major support level, they should gradually accumulate shares of large, stable companies within robust sectors such as banking, FMCG, auto, and IT. Rather than investing the entire amount at once, deploying funds in tranches during market dips would prove to be the wisest course of action.

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