Sensex, Nifty slip into red mid-session; RBI holds repo rate at 5.25%

Equities give up early gains

Indian stock benchmarks slipped into the red by mid-session on Wednesday, August 5, as investors digested the Reserve Bank of India's (RBI) decision to keep the repo rate unchanged at 5.25%. The Sensex, which opened on a firm note, gave up gains to trade lower, while the Nifty followed suit, tracking profit booking in index heavyweights.

Volatility remained the day's theme, with intraday swings widening as the market reacted to the central bank's monetary policy stance. The RBI's status quo was widely anticipated, but the accompanying commentary on inflation and growth drew traders' attention.

RBI holds rates, stance remains accommodative

The Monetary Policy Committee (MPC) voted to hold the repo rate at 5.25%, marking the fourth consecutive pause in the current cycle. The central bank retained its accommodative stance, signalling a preference for supporting economic recovery while monitoring inflationary pressures.

Governor's remarks on liquidity management and growth projections were parsed by market participants, though no major surprises emerged. Analysts noted that the policy tone was balanced, with an eye on global cues and domestic demand.

Sectoral rotation weighs on indices

By mid-session, selling pressure was visible across select sectors, particularly information technology and banking stocks. The Nifty IT index traded lower, while private bank counters witnessed profit booking after a recent run-up.

On the other hand, auto and FMCG stocks showed resilience, offering some support to the broader market. The broader indices, including the BSE Midcap and Smallcap, also traded mixed, reflecting cautious sentiment.

Global cues and crude oil in focus

Asian markets were subdued in early trade, with investors awaiting fresh cues from global central banks and economic data. Crude oil prices remained volatile, adding to the uncertainty for import-dependent economies like India.

Foreign institutional investors (FIIs) have been net buyers in recent sessions, but domestic institutions have turned selective. Market participants are now watching for any shift in fund flows as the earnings season progresses.

What to watch next

Traders will keep a close eye on the RBI's forward guidance and any commentary on future rate actions. Global developments, particularly the US Federal Reserve's stance and oil price movement, are likely to dictate near-term direction.

With the policy overhang now out of the way, the market may take cues from corporate earnings and macroeconomic data due later this week. A sustained close above key resistance levels could bring buyers back, but until then, caution is likely to prevail.