Markets gyrate as RBI disappoints D-Street

As market expected 50-bp repo rate cut to be announced by RBI, Sensex falls 0.81% and Nifty dips 0.92%

Equity indices ended weak on Friday in volatile trade after the Reserve Bank of India’s (RBI) lower-than-expected policy rate cut spooked investors. Analysts said the central bank’s comments that there is limited room for monetary easing also weighed on sentiment, sparking profit booking across share categories.

A large section of the market was expecting the RBI would cut the repo rate by 50 basis points following the recent decline in global crude oil and gold prices that could lead to better government finances and lower inflation.

“The rate cut was expected to be far higher,” said Sonam H Udasi, senior vice-president, head-research, IDBI Capital.

The BSE’s Sensex fell 160.13 points or 0.81 per cent to close at 19,575.64 after touching the day’s low of 19,542.63. The NSE’s Nifty declined 55.35 points or 0.92 per cent to end at 5,944. Both indices rebounded briefly mid-way through the session thanks to short-covering but could not maintain the upward momentum because of fresh selling. FIIs were net buyers of Rs 953 crore worth shares, while DIIs were net buyers of Rs 792 crore, according to provisional data.

Banking stocks were the worst performers on Friday with the index declining 2.5 per cent on worries that a likely decline in government security prices in the wake of the tight monetary outlook by RBI could impact lenders’ bond portfolio. These stocks had gained as much as 10 per cent in the last two weeks.  On Friday, SBI, ICICI Bank, PNB and Axis Bank were some of the worst performing stocks in the Nifty, with each falling more than three per cent.

On the NSE, the advance-decline ratio was about 1:2 with 494 advances alongside 798 declines.

“There has been a downward bias as the markets had moved strongly in the past few sessions based on events like the commodity price fall and good earnings numbers,” said Hemant Kanawala, head – equity investment, Kotak Life Insurance.

Stocks of other rate-sensitive sectors like auto, public sector undertakings and realty were also down by more than a per cent each.

Metal sector stocks were the highest gainers, with the CNX Metal index moving up 1.4 per cent. Statements by the European Central Bank to continue with the stimulus saw metal stocks move up in tandem with a global rally in prices.