The equity markets seem to have factored in the rate hike of 25 basis points by RBI as evidenced by the fact that the BSE Sensex ended the day flat, up by only 0.34 per cent.
What the markets did not factor in was the hawkish stance' of the RBI which basically meant there could be further rate hikes, said Mr Kishor Ostwal, CMD, CNI Research.
The BSE Sensex ended the day at 16,933.83, while the Nifty ended at 5,084.25, up 0.17 per cent from its previous close.
A statement by BNP Paribas on the RBI rate hike said: the near-term risk is for further tightening. Given the RBI's line that persisting with the current anti-inflationary stance is imperative, market expectations for aggressive policy easing, beginning this year, look misplaced.
Volatile The stock markets were volatile during the day with the graph on an upward trend till around noon. Post the policy-announcement the markets were choppy, eventually ending the day flat. Analysts say that a pause was expected on rate hikes. However, when the RBI looked pessimistic about ending rate hikes, there was a flurry of profit-booking by investors leading to heavy volatility in the market.
RBI policy rate hikes have now become a non-event in the market. Investors will now look at other policy measures like the domestic policy issues, LPG, diesel prices and also, the international factors. The coming weeks may remain just as volatile as this week was due to these factors, said Mr Sudip Bandyopadhyay, Managing Director and CEO, Destimoney Securities.
Market experts also see a certain amount of stability seeping into the market with the European markets looking steady. They say that the next big event would be the world bank-IMF meeting to be held next week.