Sensex, Nifty log best week in six months after RBI cuts CRR by 50 bps: What should investors do now? Experts weigh in | Stock Market News

Stock market today: Domestic equity benchmarks Sensex and Nifty 50 logged their best week since June in the previous session, led mainly by financials after the Reserve Bank of India (RBI) boosted liquidity in the banking system by cutting the cash reserve ratio (CRR) by 50 basis points (bps) in its December monetary policy committee (MPC) meeting.

Nifty 50 ended the previous session with a minor loss of 0.12 per cent at 24,677 but logged a sharp weekly gain of 2.27 per cent. Meanwhile, the Sensex closed with a slight drop of 0.07 per cent at 81,709, wrapping up the week with a notable gain of 2.39 per cent. Hence, the Nifty and Sensex added 2.3 per cent and 2.4 per cent, respectively, this week, their best since early June when the general election results confirmed policy continuity.

Sensex, Nifty post best week in 5 months

After swinging between highs and lows during the day, the 30-share BSE benchmark Sensex declined 56.74 points or 0.07 per cent, settling at 81,709.12. Intra-day, it swung 419.72 points, hitting a high of 81,925.91 and a low of 81,506.19. Notably, this marks the third consecutive week of gains for Nifty and Sensex.

The Nifty Smallcap 100 index extended its winning streak for the 11th consecutive session, adding 0.82 per cent to reach 19,492, and concluded the week with a robust gain of 4.51 per cent. The broader, more domestically-focused midcaps rose 0.5 per cent on the day. They ended the week about 4.3 per cent higher.

Analysts said that the central bank’s concerns over a recent growth slump and elevated inflation could keep markets in consolidation mode, with a positive bias in the coming days. Other domestic rate-sensitive sectors, such as realty, rose 5.3 per cent this week, while auto gained 2.5 per cent.

The weekly jump in the benchmarks was also supported by IT stocks, which rose this week on the back of comments from the US Federal Reserve Chair, signalling strength in the US economy. IT firms, which earn a significant share of their revenue from the US, gained 3.6 per cent for the week.

“Equity markets got what they wanted from the RBI and have taken the policy outcome in their stride,” said Dhiraj Relli, chief executive of HDFC Securities. Financials gained three per cent in the prior four sessions in anticipation of the cut in the CRR, which is expected to support lenders’ margins.

Among individual stocks, Adani Ports gained 5.8 per cent for the week, its best since May. Tata Motors, Axis Bank, Maruti, Larsen & Toubro, ITC and Tata Steel were the gainers in the 30-share index. Among sectoral indices, metal jumped 1.17 per cent, consumer durables (1.16 per cent), auto (0.92 per cent), services (0.82 per cent) and consumer discretionary (0.63 per cent).

“Though benchmark indices concluded on a flattish trend, Indian broader indices displayed optimism as the RBI acknowledged the downward growth trend while last-mile inflation persisted,” said Vinod Nair, Head of Research, Geojit Financial Services.

“By lowering the CRR and injecting ₹1.16 lakh crore into the financial system, the RBI aims to stimulate economic growth amid increased liquidity. The overall market exhibited a mixed outlook, reflecting a cautious yet resilient stance, with sector rotation and specific stock movements shaping market sentiment,” added Nair.
 

RBI Monetary Policy Decisions

The RBI on Friday kept its key interest rate unchanged, citing inflation risks, but cut the CRR for the first time in years, boosting money with lenders to support a slowing economy. The RBI’s rate-setting panel kept the repurchase or repo rate unchanged at 6.5 per cent for a record 11th meeting in a row. 

RBI Governor Shaktikanta Das announced that 50 basis points had cut the CRR to four per cent, effective in two tranches on December 14 and 28, 2024. The cut will infuse ₹1.16 lakh crore into the banking system, soften short-term interest rates, and reduce the pressure on bank deposit rates.

While the move was seen as a positive measure to support liquidity in the banking system, the markets remained subdued due to concerns over India’s economic outlook and inflation. The RBI downgraded its FY25 real GDP growth forecast from 7.2 per cent to 6.6 per cent and raised the inflation target from 4.5 per cent to 4.8 per cent, dampening investor sentiment.

“Monetary policy has delivered exactly what the economy and markets need in the present context. The Governor’s emphasis on price stability is appropriate, given the elevated level of inflation. The decision to cut the CRR by 50 bps, facilitating the injection of ₹1.16 trillion of liquidity into the system, will ease the liquidity constraints and, more importantly, reduce the banks’ cost of funds. From the market perspective, this is an excellent policy response. Banking stocks will remain resilient,” said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

What should be your trading strategy after RBI boost liquidity?

According to D-Street experts, this period presents an opportune moment for investors to recalibrate their strategies. Temporary headwinds, such as monsoonal disruptions and election-related factors, are anticipated to wane, paving the way for a recovery in the coming quarters. Sectors with strong earnings visibility, manageable debt levels, and sustainable competitive advantages will likely drive the next growth cycle. 

“Diversified portfolios focused on emerging growth themes can capitalize on India’s medium- to long-term growth potential, underpinned by domestic economic resilience and favourable global trends. The RBI’s policy adjustments, emphasizing stability and liquidity, position the economy and markets for sustained growth while providing a foundation for strategic, long-term investment opportunities,” said Dr. Vikas Gupta, CEO and Chief Investment Strategist of OmniScience Capital.

Ajit Mishra, SVP, Research, Religare Broking Ltd, maintains a bullish outlook and recommends investors adopt a “buy on dips” strategy, emphasizing selective stock picking. While the strong performance from key sectors such as banking and IT will likely persist, he anticipates selective contributions from other sectors. “The broader indices, particularly midcap and smallcap segments, present promising opportunities, making selective investments in this space worthwhile,” said Mishra.

From a rates perspective, as the market starts to price in policy easing, we could see benchmark yields align more closely with policy rates. This would give investors a tolerance for interest rate risk and opportunities to increase exposure to slightly higher-duration assets as the easing cycle progresses. “However, external factors, particularly US fiscal and trade policy, remain key sources of uncertainty and will likely continue to drive volatility,” said Namrata Mittal, Chief Economist, SBI Mutual Fund.

In the MPC verdict, RBI Governor Shaktikanta Das also announced an increase in the limit for collateral-free agricultural loans to ₹2 lakh per borrower. He proposed a new benchmark secured overnight rupee rate to enhance transparency and liquidity in the money markets. 

“The measures aim to balance liquidity support, inflation control, and growth stimulation. The rupee could benefit from increased foreign inflows, while bond yields may remain elevated due to inflation concerns. Gold and other safe-haven assets might attract investor interest,” said Vinit Bolinjkar- Head of Research at Ventura Securities.

Regarding bond markets, market analysts say fixed-income investing prefers a stable, almost ‘boring’ environment, which is exactly what has been delivered. “Investors should continue using fixed income for effective portfolio construction. A barbell strategy of buying short-end corporate bonds with long-end g-Sec and bank infra bonds is suggested for benefiting from carry and potential capital gains,” said Vishal Goenka, Co-Founder of IndiaBonds.com.

Technical View

The Nifty continues to sustain above the breakout from an inverse head-and-shoulders pattern, indicating underlying market strength. “In such conditions, adopting a buy-on-dips strategy seems prudent, especially with the potential for an upward move toward 25,500 in the short term. However, minor pullbacks following a sharp rally are possible, further emphasizing the effectiveness of buying on dips to capitalize on this trend,” said Rupak De, Senior Technical Analyst at LKP Securities.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.