By Our Business Correspondent
Indian equity markets ended lower on Friday, weighed down by cautious investor sentiment following the Reserve Bank of India’s (RBI) latest monetary policy decision. The central bank’s move to hold key interest rates steady, coupled with a downward revision in growth forecasts and an upward adjustment in inflation projections, dampened market confidence and reinforced concerns about the near-term economic outlook.
Benchmark indices slipped modestly during the session. The Sensex closed 116.67 points lower, or 0.16%, at 74,243.34, while the Nifty 50 declined 49.85 points, or 0.21%, to settle at 23,366.70. The Nifty also fell below the psychologically important 23,400 level during the day, reflecting broad-based caution among investors. Weak cues from Asian markets further exacerbated the decline.
Selling pressure was particularly evident in metal and information technology stocks, which dragged the indices lower. Among the key laggards on the Nifty were Trent, HDFC Bank, and Reliance Industries, all of which contributed to the downward momentum. In contrast, healthcare stocks bucked the trend and emerged as a relative bright spot, supported by defensive buying amid uncertain macroeconomic conditions.
Despite the weakness in benchmark indices, broader markets displayed relative resilience. The BSE MidCap index edged down 0.10%, while the SmallCap index slipped marginally by 0.01%, indicating selective investor participation. Market breadth remained slightly negative, with declining stocks marginally outnumbering advancing ones on the BSE.
The RBI’s Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, unanimously decided to maintain the repo rate at 5.25% under the liquidity adjustment facility. Correspondingly, the standing deposit facility (SDF) rate was held at 5%, while the marginal standing facility (MSF) rate and bank rate were retained at 5.50%. The central bank also maintained its neutral policy stance, signaling a wait-and-watch approach amid evolving global and domestic uncertainties.
In its policy statement, the RBI highlighted growing risks to global growth and inflation stemming from prolonged geopolitical tensions, particularly in West Asia. Volatility in energy markets, declining crude inventories, and rising commodity prices have prompted major central banks worldwide to adopt a cautious stance, with many advanced economies expected to lean towards tighter monetary conditions.
On the domestic front, the central bank noted that economic activity remains broadly resilient. Key drivers include steady private consumption, sustained investment momentum, robust services exports, and strong merchandise export performance in April 2026. However, emerging challenges such as higher freight and insurance costs, coupled with geopolitical uncertainties, are beginning to exert pressure on growth.
The RBI also flagged concerns regarding a potentially deficient southwest monsoon, which could impact agricultural output and rural demand. Nonetheless, it expressed confidence that ongoing government initiatives would help mitigate these risks to some extent.
Reflecting these dynamics, the RBI revised its real GDP growth forecast for FY27 downward to 6.6% from the earlier estimate of around 6.9%. Quarterly projections indicate growth of 6.6% in the first quarter, 6.3% in the second, 6.5% in the third, and 6.8% in the fourth quarter. The central bank identified supply chain disruptions, financial market volatility, and weather-related shocks as key downside risks.
Inflation projections were also revised upward. The RBI now expects consumer price inflation (CPI) to average 5.1% in FY27, compared with its earlier estimate of 4.6%. Quarterly inflation is projected at 4.2% in Q1, rising to 5.9% in Q3 before moderating slightly to 5.4% in Q4. Core inflation is estimated at 4.7% for the year. The central bank attributed the upward revision to elevated energy prices, global supply constraints, and weather-related uncertainties, including the risk of El Niño.
Given these uncertainties, the MPC emphasized the need to maintain policy stability until clearer signals emerge. The minutes of the meeting are scheduled for release on June 19, with the next policy review slated for August 3–5.
In parallel, government data released on Friday showed that India’s economy grew 7.7% in FY26, up from 7.1% in the previous fiscal year. GDP growth for the January–March quarter was estimated at 7.8%, underscoring underlying economic strength despite emerging headwinds.
The government also announced a series of measures aimed at attracting long-term foreign capital. These include tax exemptions for foreign portfolio investors on interest income and capital gains from government securities, expanded access to sovereign bonds under the Fully Accessible Route, and liberalized investment norms for overseas individuals. These reforms are intended to enhance ease of doing business and support stable capital inflows.
In the bond market, the yield on the 10-year benchmark government security eased slightly to 6.975%. The Indian rupee strengthened modestly against the US dollar, while global commodity markets remained subdued, with crude oil prices showing marginal declines.
Global markets presented a mixed picture. European indices traded higher, while Asian markets declined sharply amid profit booking in technology stocks. Overnight, US markets were mixed, with the Dow Jones hitting a record high even as technology-heavy indices faced pressure due to a sell-off in semiconductor stocks.
Overall, market participants remain cautious, balancing strong domestic growth fundamentals against rising global uncertainties and inflationary pressures. The RBI’s policy stance suggests that stability, rather than aggressive intervention, will guide monetary policy in the near term.