Indices slump as RBI cuts growth forecast; Sensex down 286 points

The benchmark indices fell on Wednesday as the RBI reduced the annual growth forecast for the economy and cut interest to help revive demand.

The Sensex fell 286 points, or 0.8 per cent, to end at 36,690, while the Nifty 50 index dropped 93 points, or 0.9 percent, to close at 10,856,  the lowest close since February 28.

The RBI reduced its repo rate by 35 basis points (bps) to 5.4 per cent. This is the fourth cut by the central bank so far this year. “Addressing growth concerns by boosting aggregate demand, especially private investment assumes the highest priority at this juncture,” RBI said in a statement.

The central bank was under pressure for a significant cut to lift economic growth from a five-year low. Inflation below the central bank’s 4 per cent medium-term target for 11 months in a row and the US Federal Reserve’s rate cut helped to retain the policymakers’ easing bias.

“Generally, we see some selling after a big event like the RBI policy announcement gets over. Markets had already factored in a 25-bps cut, and there is no new trigger for the market. The underlying fundamentals are still weak,” said Siddhartha Khemka, head of research (retail), Motilal Oswal Financial Services. The rupee fell 0.1 per cent to 70.88 per dollar, while the yield on the benchmark 10-year government bond rose by three bps.

“The difference between repo rate and retail inflation has come down significantly, which reduces chances of a significant rate cut going ahead. Market is disappointed because the rate cut transmission has not been effective enough so far,” said Abhimanyu Sofat, head (research), IIFL Securities.