Indian equity benchmarks fell after see-sawing between gains and losses in early trade on Wednesday, extending losses for the fourth straight day ahead of a widely expected rate hike, with traders waiting for details on the RBI's outlook in its fight against domestic inflation.
The BSE Sensex index fell a modest 44.86 points to 62,581.50 after opening in the green in early trade, and the broader NSE Nifty index was in the red after opening marginally higher.
"Markets are likely to witness a choppy trend in early trades Wednesday amid weakness in other Asian indices, as RBI's monetary policy meeting on interest rates will be keenly eyed by the investors," said Prashanth Tapse, Senior Vice President for Research at Mehta Equities.
"RBI's statement on the inflation & growth outlook would determine the market sentiment in the near term. Technically, investors should refrain from taking large leveraged positions until Nifty clears its all-time-high of 18,888 mark. The line in the sand is at Nifty's support at 18,417," he added.
After three consecutive 50-bps (basis points) rate increases to manage inflation that has remained persistently high, the RBI is widely expected to hike rates by a more modest 35 bps, with the decision due at 10:00 am.
But given that inflation in Asia's third-largest economy continues to remain above the upper level of the RBI's tolerance band of 4-6 per cent, even as it touched a three-month low of 6.77 per cent in October, the focus will be on the central bank's outlook on growth and prices for direction.
Indian equity benchmarks have fallen for four straight days after an eight-day bull run, including a record closing streak for six consecutive days.
The indexes had risen to all-time highs due to recent indications of slowing inflation and the decline in crude oil prices, which is advantageous for a significant crude importer like India.
The indexes, however, have fluctuated over the previous three sessions due to the RBI meeting and solid US data, which dampened hopes that the Federal Reserve will reduce the rate hike cycle.
Globally, investors dampened their euphoria about China's reopening as reality chewed into expectations for a softer economic landing in the United States, pausing the rally in world stocks.
Overnight, the S&P 500 fell for a fourth straight session, putting the breaks on an almost two-month-long run. Brent futures are now trading around $79.50 per barrel, returning oil to where it was at the start of the year.
The Nikkei in Japan fell 0.5 per cent, while the MSCI's broadest index of Asia-Pacific shares outside of Japan declined 0.4 per cent.
"Some of the optimism that had driven the rally is being put to the test," Shane Oliver, Head of Investment Strategy at Australia's AMP told Reuters.
"We might be transitioning from a situation of worrying about inflation and interest rates, to one where the negatives become weakening growth and falling profits," he added.
Big banks in the US are preparing for a poorer economy in 2019 as rising rates and inflation threaten consumer demand. Top executives at Goldman Sachs, JP Morgan, and Bank of America all sounded pessimistic in their Tuesday remarks.
"Economic growth is slowing," Goldman Sachs CEO David Solomon told Reuters. "When I talk to our clients, they sound extremely cautious."
Longer-dated bonds gained in response to those growth concerns, and the safe-haven dollar was able to halt its recent decline.