Banks led the decline with Nifty Bank and BSE Bank index dropping over 3% each.
Markets ended sharply lower on Tuesday as weak global cues took precedence over Reserve Bank of India’s rate cut by 25 bps which was in line with economists’ expectations.
The S&P BSE Sensex dropped 516 points to end at 24,884 and the Nifty50 plunged 156 points to finish at 7,603.
“Transmission of policy rate cuts has been disappointing. However, given that the government has cut administered interest rates, there is room for banks to cut deposit rates, in turn making room for cuts in lending rates. I believe the banking system is set to enter a lower interest rate regime. Having said that, I expect the RBI to remain cautious about further policy rate cuts. The lower interest rate regime that I anticipate would be led more by the cut in interest rates on small savings and adoption of the MCLR methodology by banks to calculate lending rates,” said Motilal Oswal, Chairman & MD, Motilal Oswal Financial Services.
RBI POLICY REVIEW
The RBI also left the cash reserve ratio unchanged at 4%. While the repo rate was cut by 25 bps, the reverse repo has been raised by 25 bps to 6%, narrowing the spread between the repo and reverse repo by 50 bps.
With this the central bank has reduced policy rates by 150 basis points since the start of the accommodative cycle, RBI Governor said in a press conference.
The central bank expects Consumer Price Inflation to ease to around 5% and economic growth of 7.6% in the current fiscal ending March 31, 2017.
“While the 25 bps repo was on expected lines, the rebasing of reverse repo and MSF rates was a positive surprise. RBI is taking a nuanced position since the inflation expectations may now begin to account in the impact of the monsoon and of the 7th pay commission. The overall stance remains accommodative. We believe that if the inflation conditions remain well within RBI’s tolerance, further room for rate cuts may get generated. Liquidity measures to continue to drive short -term yields Lower. We continue to recommend duration to our existing investors. Accrual funds can be looked at by investors, since the possibility of spread compression has increased,” said Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mutual Fund.
GLOBAL MARKETS
European stock markets declined across the board on the back of an unexpected drop in German manufacturing orders amid global growth concerns. Germany’s DAX slumped 2.7%.
The weakness came after data showed total orders for the country's important manufacturing sector fell 1.2% in February missing estimates of a small gain.
In line, The U.K.'s FTSE 100 shed 1.5% while France's CAC 40 lost 2%.
Meanwhile, Asia markets finished lower with Japanese shares plunging on the back of a stronger yen.
Japan's Nikkei cracked 2.5% while, Hong Kong’s Hang Seng and Singapore’s Straits Times lost 1.6% and 1.2% each.
However, China’s Shanghai Composite bucked the trend and rose 1.4%.
Also, oil prices tumbled on dwindling hopes that key producers will reach an agreement to freeze output when they meet this month to discuss a global supply glut.
RATE SENSITIVES
Interest rate-sensitive sectors shares such as bank, auto and realty declined on profit booking after the RBI today reduced the repo rate or repurchase rate, the rate at which banks borrow from the central bank, by 25 basis points.
In the banking pack, ICICI Bank, SBI, YES Bank, PNB, Axis Bank, Federal Bank, Kotak Mahindra Bank, HDFC Bank and IndusInd Bank lost up to 4.5%.
In the auto space, Tata Motors, TVS Motors, Hero Motocorp, Maruti Suzuki, Eicher Motors, Motherson Sumi, M&M, Ashok Leyland and Bharat Forge shed between 0.5%-4%.
Following the tandem, realty shares fell across the board with Indiabulls Realty, HDIL, Unitech, DLF, Sobha Realty, DB Realty, Oberoi Realty, Godrej Properties and Pheonix losing up to 5%.
STOCK ACTION
Coal India dipped 2.5% after the company said that the coal stock in some of its mines has increased due to regulated lifting by the power producers.
ITC extended losses and was down over 1% after the FMCG major shut down its cigarette factories on account of uncertainty over health warnings on cigarette packs.
Further slip in oil prices hurt the oil and gas stocks with RIL and ONGC slipping nearly 1% each.
Metal stocks have taken a beating in today’s trade with Hindalco, Tata Steel down 4.5% and 2.4% each.
On the flip side, Lupin closed with modest gains after the company launched a generic insomnia drug, Zolpidem Sublingual tablets, in the US market with 180-days of marketing exclusivity.
Relaxo Footwears jumped over 13%. According to NSE Bulk deal data, Jwalamukhi Investment Holdings bought 1.89 million shares of the company at an average price of Rs.424.89 a shares. VLS Finance Ltd has sold 1.77 million shares of the company at an average price of Rs.425 a share.
