Indian markets tank 2% on global jitters

RBI's 25 bps rate cut, though widely expected, fails to cheer the Street

The Indian markets on Tuesday dropped two per cent amid weak global cues despite the Reserve Bank of India (RBI)’s easing policy rates by 25 basis points (bps), as was widely forecast by economists.

Concerns over global economic growth triggered a sell-off in global equities as well as demand for safe-haven assets. The benchmark BSE Sensex fell 516 points, or two per cent, to 24,883.6, the lowest close since March 17. The Nifty 50 ended at 7,603, down 156 points, or two per cent, the most since February 11. The latest round of risk-off trade was triggered by weak economic data in the US and Germany this week and comments from International Monetary Fund head Christine Lagarde highlighting greater risks to global growth.

Read more from our special coverage on "SENSEX"

• Sensex gains 130 pts ahead of RBI meet
• Sensex begins financial year on a sour note
• Sensex posts biggest fall in five weeks
• Sensex caps fourth weekly climb
• Top six firms add Rs 37,414 crore in market cap; TCS lead gainer

Asian markets, with the exception of China, ended two per cent lower, while most European markets opened weak as investors cut bets and moved to safe-haven assets. Yields on developed-world bonds dropped, while gold prices gained the most in a week. Oil prices fell a third day.

Foreign institutional investors on Tuesday sold shares worth Rs 800 crore, the most since February 29, provisional data showed.

RBI’s decision to cut the repo rate by 25 basis points to 6.5 per cent, the lowest in five years, failed to cheer the market, with banking stocks leading the declines. Market players said the rate cut was largely factored in by the market and global cues dampened sentiment.

“The repo-rate cut was largely discounted in the markets. Thus, with no positive surprise, the markets came off, after the policy announcement,” said Kamlesh Rao, chief executive of Kotak Securities. “Quarterly results will be the trigger for markets. Company earnings are expected to be muted, though better than the December quarter’s. Fiscal reforms in the second half of the Budget session and the monsoon, which will boost rural demand, will also be closely watched by the markets.”

The shares of State Bank of India (SBI) and ICICI Bank fell five per cent each. Adani Ports, Bharti Airtel, and Tata Motors were the other major losers, each dropping 4.5 per cent.

“Profit-taking was witnessed across the board. Rate-sensitive sectors such as banking, automobile, and realty lost the most, closely followed by metal and media counters,” said Jayant Manglik, president, retail distribution, Religare Securities.

In March, India’s benchmark indices had gained nearly 11 per cent, their best monthly advance since January 2012. The rally, aided by foreign institutional investments of $4.1 billion (Rs 27,358 crore), was spurred by growth-boosting measures by global central banks.

The rupee on Tuesday ended at 66.46 against the dollar compared to the previous close of 66.20. Market players said the sustainability of the rupee would be key for sustaining foreign flows.

Pranjul Bhandari, chief India economist at HSBC, said, “With 150 basis points in repo-rate cuts behind us, our real rate maths suggests room for a last and final 25 basis points of easing in 2016. We expect the rupee to be an outperformer and we believe the market has been too negative on the currency, as many positive attributes that drew investors into the rupee remain largely valid.”

The Sensex, which is down nearly five per cent in 2016, trades at 15.23 times its forecast one-year forward profits compared to 12 times for the MSCI Emerging Markets index.