Financials lead slide in Indian shares as RBI keeps rates unchanged

BENGALURU, Aug 10 (Reuters) - Indian shares declined on Thursday, led by financials, after the Reserve Bank of India (RBI) held its key rates steady for the third consecutive time as expected while raising its inflation forecast.

The Nifty 50 (.NSEI) index was down 0.47% at 19,539.15, while the S&P BSE Sensex (.BSESN) fell 0.52% to 65,655.19 at 11:17 a.m. IST.

Both the indexes lost more than 0.7% each following the announcement after falling 0.3% each ahead of the decision.

While the monetary policy committee of RBI left the key repo rate unchanged at 6.5%, the central bank governor Shaktikanta Das said there could be a substantial rise in headline inflation in the near term and flagged uncertainties in the domestic food price outlook.

The RBI also raised its retail inflation forecast for fiscal 2024 to 5.4% from 5.2% earlier.

Sectors sensitive to domestic interest rates like financials (.NIFTYFIN), auto (.NIFTYAUTO) and realty (.NIFTYREAL) fell between 0.2% and 0.9%.

The RBI also asked banks to set aside a larger part of incremental deposits under cash reserve ratio (CRR) to tighten liquidity in the near term.

\“The 1-month incremental CRR has triggered a small correction in the banks,\” said Samrat Dasgupta, CEO of Esquire Capital Investment Advisors. \“The impact of this measure will, however, be marginal\”. The governor said the measure will be temporary and that the RBI will review it on Sept. 8.

Consumer stocks like Asian Paints (ASPN.NS), Tata Motors (TAMO.NS), Tata Consumer (TACN.NS), Nestle India (NEST.NS) were among the top Nifty 50 losers.

\“It would be difficult for risky assets to perform in the face of the headwinds caused by tight monetary and financial conditions,\” said Sandeep Bagla, CEO of Mumbai-based Trust Mutual Funds.

Reporting by Bharath Rajeswaran and Sethuraman N R in Bengaluru; Editing by Eileen Soreng and Dhanya Ann Thoppil

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