Stock market, RBI rate cut: Gift Nifty hints at firm opening; Nifty Bank, Nifty levels to watch

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) shall be announcing its policy on Friday, February 7. The MPC meeting was scheduled to meet on February 5 to 7, 2025 and the decision will be announced on February 7 by the new RBI Governor Sanjay Malhotra at 10 am. Majority of the experts are expecting the RBI to cut the repo rates later today.

The central bank is seen to cut rates after nearly five years, post the covid-19 pandemic in May 2020. The move is likely to provide stimulus to its sluggish economy, with easing price pressures giving policymakers more room to manoeuvre. India's government has forecast annual growth of 6.4 per cent in the year ending in March, its slowest pace in four years.

RBI is expected to cut the repo rate by 25 basis points in the monetary policy meeting. The last rate cut was in May 2020 to revive the economic growth affected by the pandemic. This shall increase the money supply in the economy, strengthen liquidity, encourage borrowing, and boost consumer demand, said Ajay Garg, CEO at SMC Global Securities.

"The increase in tax rebate to Rs 12 lakhs in the Union Budget for increasing the disposable income of the middle-class population and the RBI’s recent liquidity measures, show a commitment that India is looking to enhance liquidity, rejuvenate sluggish demand, and foster economic growth," he added. "However, the falling rupee is a key trigger that could influence the RBI's decision as further cuts can put pressure on the Indian rupee and increase outflows from the country."

Ahead of the RBI's policy outcome, Nifty futures on the NSE International Exchange (Gift Nifty) traded 33.60 points, or 0.14 per cent, higher at 21,722.50, hinting at a positive start for the domestic markets on Friday. Any unexpected announcement by the RBI may dampen the mood of the market.

On a global front, US stocks ended mixed at the end of choppy session on Thursday as investors digested a spate of earnings. Asian stocks were also mixed as Japan's Nikkei dropped nearly half a per cent, while Hong Kong's Heng Seng and China's Shanghai Composite added half-to-one-per cent. South Korea's Kospi was slightly down.

The RBI has space for policy easing by 50-75 bps interest rate cuts in this cycle. We think the MPC will go ahead and start cutting Repo Rate by 25 bps in tomorrow’s policy as real rates are currently very high leading to growth slowdown and inflation is trending back to the MPC target of 4 per cent, said Jalpan Shah - Head Fixed Income Group, TRUST Mutual Funds.

"The key challenges in front of the MPC is the Global environment, especially the potential measures by the United States under the Trump administration that is turning out to be broadly inflationary. Capital outflows in an environment of global dollar strengthening is likely to lead to a measured depreciation of Indian currency," he said.

RBI is likely to cut repo rate by 25 basis points for the first time in almost five years after the domestic rate-setting panel has kept the policy repo rate unchanged for the last 11 consecutive meetings after raising it by 250 bps between May 2022 and February 2023, said Bajaj Broking. RBI's recent liquidity measures aim to stabilize the financial system, it said.

"The MPC shifted to a neutral stance in October, providing flexibility in policy decisions. Economists expect no change in this stance in February, with a shallow rate cut cycle anticipated," it added. "While the RBI ensures sufficient liquidity, a CRR cut is unlikely in the next policy announcement, as the central bank maintains a supportive financial environment."

The Indian rupee depreciated 12 paise to close at 87.578 to a dollar on Thursday, as expectations for a 25-basis-point rate cut by the monetary policy committee of the Reserve Bank of India led to short bets in the non-deliverable forwards market. On an intra-day basis, the local currency tested the all-time low at 87.590.

Provisional data available with NSE suggest that overseas investors or FPIs turned net sellers of domestic stocks to the tune of Rs 3,549.95 crore on Thursday. On the other hand, domestic institutional investors (DIIs) turned net buyers of Indian equities to the tune of Rs 2,721.66 crore.

Levels to watch out for Nifty and Nifty Bank

Going forward, the sentiment might depend heavily on the RBI's monetary policy announcement on Friday. Technically, 23,500 may continue to act as a significant support level, but a decisive fall below it could shake the confidence of the bulls, said  Rupak De, Senior Technical Analyst at LKP Securities. "On the higher end, resistance is placed at 23,800 and 24,050," he added.

Technically speaking, the Bank Nifty has formed a small red candle near its previous resistance point of 50,600, said  Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C Mehta Investment Interrmediates. "On the downside, immediate support for the Bank Nifty is placed near 50,000 levels. Thus, the index is expected to consolidate in the 50,000-50,600 range in the short term. A breakout in either direction will further set the next move for the index," he said.