Sensex, Nifty Trade Higher As Investors Await RBI's Rate Decision

Indian benchmark indices traded higher on Friday as investors awaited the Reserve Bank of India's monetary policy decision, with market participants closely watching for signals on interest rates, inflation and measures to support the rupee amid elevated energy prices.

Investor sentiment was supported by strong buying in information technology stocks, helping benchmark indices extend gains despite weak cues from Asian markets.

Most sectoral indices traded in positive territory, with only Nifty Metal and Nifty FMCG remaining in the red. Nifty PSU Bank emerged as the top-performing sector, rising 1.32%, while the India VIX slipped 0.94%, indicating easing market volatility and improved risk appetite.

IT Stocks Rebound

The biggest support for the market came from information technology shares, which rebounded after witnessing losses over the previous two sessions.

Investors resorted to value buying in beaten-down technology stocks, helping the sector recover from recent weakness. The rebound in IT shares came despite continued concerns about the global technology sector following signs of moderation in the artificial intelligence-driven rally that has fuelled markets in the US and parts of Asia.

The recovery in IT counters helped offset concerns stemming from weak global markets and geopolitical uncertainties.

RBI Policy In Focus

Market participants remained cautious ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee (MPC) meeting.

According to market expectations, the central bank is likely to keep the repo rate unchanged at 5.25%. A Reuters poll suggested that most economists expect rates to remain on hold, while a Bloomberg survey indicated that 32 of 38 economists anticipate no change in policy rates.

However, investors will closely scrutinise the RBI's policy statement and Governor's commentary for clues on inflation, growth projections, liquidity conditions and the outlook for the rupee.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the market expects the RBI to maintain rates while adopting a cautious stance.

"The most likely policy action is a 'hawkish hold', that is, the RBI would hold the rates without any change but would send a hawkish message that inflation is set to rise and, therefore, expect rate hikes later this year," he said.

He added that a surprise 25-basis-point rate increase could boost banking stocks but would negatively affect interest-rate-sensitive sectors such as automobiles and real estate.

Crude Oil Eases

Oil prices remained relatively subdued as investors tracked developments in West Asia and signs of potential diplomatic progress between the United States and Iran.

Brent crude traded around $95.20 per barrel after declining in the previous session. The moderation in crude prices provided some relief to investors concerned about inflationary pressures and India's import bill.

However, geopolitical uncertainty remains elevated. Sentiment in global markets was affected after Hezbollah rejected a fresh ceasefire proposal in Lebanon, while Israel reiterated that it would not withdraw its forces, raising doubts over efforts to de-escalate tensions in the region.

Global Markets Under Pressure

Asian markets traded lower as investors booked profits in technology shares and adopted a cautious approach ahead of the weekend.

South Korea's Kospi declined 6.29%, while Japan's Nikkei 225 fell 1.34%. The weakness was partly attributed to fading momentum in artificial intelligence-linked stocks after semiconductor major Broadcom reported results that disappointed investors.

Vijayakumar noted that there are early signs of weakness emerging in AI-related trades across the US, South Korea and Taiwan, although it is too soon to determine whether the trend will sustain.

Despite weak global cues, Indian markets remained relatively resilient, supported by domestic buying and optimism surrounding the RBI policy outcome. Investors are expected to remain focused on the central bank's guidance, which could determine the near-term direction of equities, bonds and the currency market.