Sensex ends in the red despite RBI's rate cut

Index tops 30,000 before dropping over 600 points

The country’s benchmark stock indices ended with losses, despite a surprise interest rate cut by the Reserve Bank of India (RBI) on Wednesday, due to profit-taking and weak global cues. The BSE Sensex on opening topped the psychological 30,000-mark for the first time, after the central bank eased key policy rates for the second time this year. The market, however, failed to sustain the gains, as investors started taking money off the table on concerns that valuations might have run ahead of the fundamentals.

The Sensex ended at 29,380.73, down 213 points from the previous day’s close and 644 points off the day’s high of 30,024.74. The broad-based NSE Nifty ended 73.6 points, or 0.82 per cent down at 8,922.65, after touching a record 9,119.2. The fall mirrored other emerging markets, which were trading near their three-week lows ahead of meetings of the central banks and the US job data. The selling was so intense that all the 30 Sensex components retreated from their day’s highs with State Bank of India and Axis Bank came off seven per cent.

“First we had the surprise rate cut then a surprise market cut. The market witnessed profit-booking at higher levels. Poor corporate results, high valuations are weighing on the market. The Budget was largely neutral to long-term positive. The market could slop further due to lack of immediate triggers,” said Yogesh Radke, ?head of quantitative research, Edelweiss Capital.

Radke predicts that the Nifty could headed lower to below 8,600-levels. Despite the sharp-sell, foreign investors were net buyers of shares in the cash market to the tune of Rs 2,786 and domestic investors too were marginal buyers at Rs 17 crore, provisional data provided by stock exchanges showed. The high foreign institutional investors buying figure was on account of block share sale in Eicher Motors. Brokers said “influential non-institutional investors” could have been responsible for the market fall, as both foreign as well as domestic investors remained net buyers.

Market players said the market could find it difficult to sustain at current levels as valuations remain high and corporate earnings remain weak.

The Sensex is trading at valuations of nearly 17 times its estimated one-year forward earnings. The current valuation is 10 per cent above the long-term averages and also at a significant premium to its global peers. Corporate earnings in the December quarter, however, has disappointed the market and belied the valuations. Analysts say improvement in corporate earnings could be long-drawn.

“While corporate credit metrics have tentatively bottomed out since the second half of 2013-14, their recovery is likely to remain protracted. As such, there is no immediate economic trigger or Union Budget’s proposal, which will cause a turnaround of stressed or vulnerable corporates,” said a report by rating agency India Ratings.

The broader markets corrected more than the benchmark indices on Wednesday. The BSE Small-cap Index fell 1.28 per cent and the BSE Mid-cap Index declined 1.06 per cent.