European Shares Likely To Open On Cautious Note Ahead Of Fed Minutes

Indian shares are expected to open lower on Wednesday in anticipation of the Reserve Bank of India (RBI) raising interest rates, as persistent inflationary pressures from the Middle East conflict compel global central banks to act. The Nifty 50 futures were trading at 22,704.5 as of 7:42 a.m. IST, suggesting a lower opening for the benchmark index, which closed at 22,776.1 on Tuesday.

The RBI is widely anticipated to increase rates by 25 basis points, the bank's first hike since February 2023, with the Governor's remarks on inflation risks garnering investor attention for clues on future rate developments. Analysts at Goldman Sachs, led by Santanu Sengupta, note that the monetary policy committee might move from a neutral stance to a calibrated tightening or withdrawal of accommodation.

Since the RBI paused rate hikes on August 5, the Nifty 50 has fallen 7.5%, influenced by higher oil prices, escalating US bond yields due to inflationary concerns, and foreign capital outflows from Indian equities. While a 25-basis-point rate increase seems probable given the surging inflation and bond yields, it is crucial to recognize that such a hike would benefit banks, as their margins expand from escalating floating rates.

Yet, non-bank lenders might face margin pressure as funding costs adjust swifter than loan yields, particularly for those with fixed-rate vehicles and microfinance institutions. Meanwhile, floating-rate housing financiers could be relatively more resilient. Other inflation-sensitive sectors, such as real estate and consumer companies, may also be impacted by the RBI's evaluation of inflation and growth, according to three market analysts.

Brent crude oil prices surged around 1% to $101.5, driven by storm risks to US oil output and Houthi attacks on Saudi Arabia, despite increased Middle East supply. Asian markets remained relatively subdued following Wall Street's equities, which hit record highs as US yields eased, dampening expectations of an imminent Federal Reserve rate hike.