Historic Day – RBI Policy Decision Amid Market Transition

Wednesday, October 1, 2025, marks a pivotal moment for Indian equity markets as the Reserve Bank of India’s Monetary Policy Committee announces its policy decision at 10:00 AM, coinciding with the beginning of a new Tuesday expiry cycle following the historic conclusion of the Thursday expiry system. The Nifty 50 closed at 24,611.10 on Tuesday, down 23.80 points (-0.10%), extending its eighth consecutive session of decline – the longest losing streak in recent memory.

The Bank Nifty provided a silver lining, closing 174.85 points higher at 54,635.85 (+0.32%), with PSU banks leading the charge with a stellar 1.84% gain. The Sensex declined 97.32 points (-0.12%) to 80,267.62, maintaining the broader market’s bearish momentum.

Gift Nifty futures are indicating a flat to slightly lower opening at around 24,767, down 12 points, suggesting cautious sentiment as traders position for the crucial RBI policy announcement.

RBI Policy Decision – Key Market Catalyst

Policy Expectations and Market Impact

The RBI’s Monetary Policy Committee decision at 10:00 AM represents the day’s most significant market-moving event, with 70% of economists expecting a status quo at 5.50% repo rate:

Base Case Scenario (70% probability) – Status Quo:

• Repo Rate: Maintained at 5.50%
• Market Reaction: Range-bound trading between 24,500-24,800
• Sector Impact: Neutral, focus shifts to policy commentary and future guidance
• Rationale: US tariff uncertainties and need to assess GST impact warrant cautious approach

Dovish Scenario (30% probability) – 25 bps Cut:

• Repo Rate: Reduced to 5.25%
• Market Reaction: 200-300 point rally expected with breakout above 24,800
• Sector Impact: Banking (+3-5%), Realty (+5-7%), Auto (+2-3%)
• Rationale: GST rate cuts providing disinflationary impact, supporting growth

Hawkish Hold (10% probability):

• Market Reaction: 100-200 point decline with support test at 24,500-24,400
• Sector Impact: Growth stocks under pressure, banking sector weakness

Key Policy Factors Under Review

Growth Dynamics:

• Q1 FY26 GDP: 7.8% – exceeded expectations but nominal growth at 8.8% shows low deflator
• FY26 Forecast: Expected revision upward to 6.7-6.8% from current 6.5%
• Manufacturing PMI: Strong at 59.3 in August, though September data shows moderation

Inflation Outlook:

• Current CPI: Expected to remain benign with GST rate cuts impact
• October CPI: Potential drop to 1.1% – lowest since 2004 due to GST rationalization
• FY27 Projection: Around 4% or lower, supporting accommodative stance

External Challenges:

• US Tariffs: 25% additional tariff (total 50%) impacting growth outlook
• H1B Visa Fees: $100,000 annual fee creating IT sector headwinds
• Trade Uncertainty: Ongoing India-US negotiations affecting policy calculus

Technical Analysis – Oversold Conditions Persist

Nifty 50 Technical Setup

The Nifty remains in technically oversold territory after eight consecutive declines, with multiple indicators suggesting potential for a bounce:

Critical Support Levels:

• 24,600: Maximum Put OI at 41.01 lakh contracts – absolute must-hold level
• 24,500: Upward sloping trendline support – major breakdown threshold
• 24,400: 200-day EMA and August lows – final technical floor

Resistance Levels:

• 24,750-24,800: Immediate resistance where selling pressure intensifies
• 24,900: Key resistance level for any meaningful recovery
• 25,000: Maximum Call OI at 69.08 lakh contracts – major resistance ceiling

Technical Indicators:

• RSI: At 38.13 – deeply oversold, suggesting bounce potential
• MACD: Below zero line with negative crossover intact
• Pattern: Lower highs and lower lows structure for eighth straight session
• Moving Averages: Trading below 20, 50, and 100-day EMAs confirming downtrend

Bank Nifty Analysis

The Banking index shows signs of relative strength with a positive close and improved momentum:

Key Levels:

• Support: 54,500 (immediate), 54,350-54,000 (strong support zone)
• Resistance: 54,840 (pivot), 55,000 (psychological), 55,500 (major)
• Pattern: High wave candle indicating volatility and indecision between bulls and bears
• RSI: At 45.14 – showing improvement from oversold levels

Institutional Activity – Massive September Outflows

Expiry Day Flow Analysis (September 30)

The monthly expiry day witnessed significant institutional activity:

Foreign Institutional Investors (FII):

• Cash Market: Net sellers of ₹2,327.09 crores on expiry day
• September Total: Massive net outflow of ₹35,300.36 crores
• Pattern: Consistent selling pressure throughout the month

Domestic Institutional Investors (DII):

• Cash Market: Strong net buyers of ₹5,761.63 crores on expiry day
• September Total: Robust net inflow of ₹65,343.59 crores
• Impact: Successfully absorbed FII selling pressure

Net Impact: ₹30,044 crores positive flow for September – DIIs more than offset FII selling, providing crucial market stability.

India VIX – Low Volatility Amid Decline

The India VIX closed at 11.07, down 2.63%, remaining in historically low territory despite the market’s eight-day decline. Key observations:

VIX Analysis:

• Current Level: 11.07 – indicating low volatility expectations despite corrections
• Pattern: Failed to sustain above medium-term moving average for third consecutive day
• Implication: Market complacency persisting even amid technical breakdown
• Historical Context: Low VIX often precedes sharp moves when uncertainty spikes

Global Market Dynamics – Multiple Headwinds

US Government Shutdown Risk

90% probability of US government shutdown beginning October 1 adds significant uncertainty:

Key Implications:

• Data Disruption: Critical employment data may be delayed, affecting Fed policy clarity
• Economic Impact: Temporary but could restrain US economic activity
• Market Reaction: Safe haven demand boosting gold to record high of $3,843.49
• Dollar Impact: Weakness expected as political uncertainty rises

Asian Market Sentiment

Mixed opening expected across Asian markets on Wednesday:

• Japan: Nikkei down 1.01% amid trade concerns and policy uncertainty
• South Korea: Kospi down 0.95% showing regional caution
• China: Markets closed for National Day and Mid-Autumn Festival (Golden Week)
• Australia: RBA expected to hold rates unchanged at policy meeting

Commodity Markets

Gold Hits Record Highs: Touched $3,843.49 – unprecedented levels due to multiple uncertainties
Oil Pressure: WTI at $63.07 (-0.6%), Brent at $67.51 (-0.6%) on OPEC+ supply expectations

Derivatives and Options Analysis

New October Expiry Cycle

With the September expiry settled, fresh positioning begins in the new October cycle:

Critical Strike Levels:

• 25,000 CE: Maximum Call OI at 69.08 lakh contracts – strong resistance
• 24,600 PE: Maximum Put OI at 41.01 lakh contracts – critical support
• 24,500 PE: 35.54 lakh contracts – additional support cushion

Options Strategy:

• Put-Call Ratio: 0.91 – indicating bullish bias rising from oversold levels
• Fresh Writing: Significant call writing at 24,700 and 24,800 strikes
• Support Base: Strong put concentration between 24,000-24,600 providing floor

Tuesday Expiry System Begins

Historic Transition: October marks the beginning of the new Tuesday expiry system:

• Next Expiry: October 29, 2025 (Tuesday) – first in the new format
• Market Adaptation: Trading community adjusting to new weekly rhythm
• Volatility Impact: Potential changes in expiry day dynamics

Sector Analysis – Selective Strength Amid Weakness

September 30 Sector Performance

Outperformers:

• PSU Banks: +1.84% – stellar performance ahead of policy decision
• Nifty Metal: +1.16% – commodity strength and infrastructure themes
• Auto: +0.40% – showing signs of recovery

Underperformers:

• Media: -1.23% – worst performing sector with fundamental concerns
• FMCG: -1.0% – despite defensive characteristics
• IT: -0.8% – continued pressure from H1B visa concerns

Policy-Sensitive Sectors

High Beta to RBI Decision:

• Banking: Direct impact from rate changes and commentary
• Realty: Interest rate sensitive with high leverage
• Auto: Consumer discretionary sensitive to credit costs
• NBFC: Funding cost implications

Trading Strategy for October 1

Pre-RBI Decision Strategy (9:15-10:00 AM)

Recommended Approach:

• Range Trading: Expect 24,550-24,700 trading range with low volumes
• Avoid Aggressive Positions: Wait for policy clarity before major commitments
• Stock Specific: Focus on individual stock opportunities rather than index plays
• Options Strategy: Consider straddles at 24,650 level for volatility play

Post-RBI Decision Strategy (10:00 AM onwards)

Rate Cut Scenario:

• Long Strategy: Look for breakout above 24,750-24,800 with targets at 24,900-25,000
• Sector Focus: Banking, Realty, Auto stocks likely to outperform
• Risk Management: Stop loss below 24,600 for long positions

Status Quo Scenario:

• Range Strategy: Trade between 24,500-24,800 range
• Defensive Positioning: Focus on quality names and defensive sectors
• Commentary Focus: Policy guidance more important than rate decision

Hawkish Hold Scenario:

• Defensive Strategy: Watch for support test at 24,500-24,400
• Short Covering: Potential opportunity if market overshoots downside
• Quality Focus: Stick to fundamentally strong stocks

Key Events Timeline – October 1

9:15 AM: Market opens with cautious sentiment ahead of RBI decision
10:00 AM: RBI MPC policy decision announcement – major market catalyst
10:15 AM: Initial market reaction and volatility surge expected
12:00 PM: RBI Governor Sanjay Malhotra press conference – policy elaboration
3:30 PM: Market close with new expiry cycle positioning
Post-Market: Fresh October derivatives positioning begins

Weekly Outlook and Risk Assessment

Positive Catalysts

1. Oversold Bounce: RSI at 38.13 suggests technical rebound potential
2. DII Support: ₹65,344 crores September buying provides strong foundation
3. Policy Clarity: RBI decision removes key uncertainty
4. New Cycle: Fresh positioning in October contracts
5. Sectoral Rotation: PSU banks and metals showing momentum

Risk Factors

1. Technical Momentum: Eight consecutive declines showing strong bearish bias
2. FII Pressure: ₹35,300 crores September outflow creating overhang
3. Global Uncertainty: US shutdown and trade tensions
4. Resistance Levels: Multiple technical hurdles overhead
5. Volatility Complacency: Low VIX masking potential for sharp moves

Investment Strategy and Conclusion

The Indian equity markets stand at a critical inflection point on October 1, 2025, with the RBI policy decision representing a potential game-changer for market sentiment. The eight-session decline has brought the Nifty to technically oversold levels where the 24,600 support zone becomes absolutely crucial.

Key Market Dynamics:

• Policy Decision Impact: Rate cut could trigger 200-300 point rally, status quo likely range-bound
• Technical Setup: Oversold conditions favor bounce but trend remains bearish
• Flow Dynamics: DII buying (₹65,344 cr) successfully offsetting FII selling (₹35,300 cr)
• Global Backdrop: US shutdown risk and trade uncertainties weighing on sentiment

Trading Recommendations:

Conservative Approach:

• Wait for RBI clarity before major positioning
• Focus on quality defensive names until trend reversal confirmed
• Maintain adequate cash for opportunistic buying

Aggressive Approach:

• Play RBI volatility with options strategies
• Look for breakout above 24,800 on dovish surprise
• Sector rotation into policy-sensitive names

Key Levels to Watch:

• Nifty Support: 24,600 (critical), 24,500 (major), 24,400 (final)
• Nifty Resistance: 24,750 (immediate), 24,900 (key), 25,000 (major)
• Bank Nifty: Support at 54,500, resistance at 55,000

Medium-term Outlook: The market’s ability to hold above 24,500-24,600 and the RBI’s policy stance will determine whether this correction finds a base or extends further. With Q2 earnings season approaching and festive season demand picking up, fundamental support exists for eventual recovery.

Risk Management: Maintain strict stop-losses and avoid bottom-fishing until clear reversal signals emerge. The new Tuesday expiry system may also create different volatility patterns requiring adaptive strategies.

Disclaimer: This analysis is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor before making any investment decisions. Past performance does not guarantee future results.

Analyst Name: Pradeep Suryavanshi
Bestmate Investment Services Pvt. Ltd.:
A-1-605, Ansal Corporate Park Sec-142, Noida 201305
CIN: U74999UP2016PTC143375
SEBI Registration Number: INH000015996
Website: www.bestmate.in    I    Email: info@bestmate.in

 

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