Key Indian equity index falls sharpest in 42 months (Weekly Review)

The worries over the monsoon and the stance of the Reserve Bank of India (RBI), which was perceived as hawkish despite a fall cut in policy rates, resulted in a near 4-percent drop in key equity indices during the week ended Friday -- the sharpest since December 2011.

While the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) fell on four successive days, the broader Nifty of the Nation Stock Exchange fell on all the five trading days, to log the worst weekly drop since December 2011.'

"The market had high expectation towards rate cut in the monetary policy update. Though it was as per expectations, the caveats are impacting the market negatively," said Vinod Nair, the head of fundamental research with Geojit BNP Paribas.

For the Sensex, considering the week's closing high at 27,959.43 points and a low of 26,551.97 points, it was a fluctuation of 1,407.46 points during the week. The index ended the week at 26,768.49 points -- down to 1,059.95 points, or 3.8 percent.

"Sentiments were also weak due to the concerns over monsoon and Greece. Quarterly results have also not provided any cheer. Markets also awaited the non-farm payroll data in US," said Dipen Shah, head of private client group research with Kotak Securities.

The one stock that came under pressure was Nestle India due to the ban on its popular brand of noodles, Maggi. The stock dipped 11 percent, the worst fall since May 2006. Tata Motors and Cipla also fell to its owest level since August 2011, while Cipla was at five-month low.

"Though RBI reduced the policy repo rate by 25 basis points, it was hawkish in its stance. The market is reading the RBI policy as a long pause with lot of uncertainties on account of monsoon and oil prices," said Anand Shah, chief investment officer wit BNP Paribas Mutual Fund.

"The markets, even after a hard struggle, cannot manage to come out of bear grip and continues to languish," said Gaurav Jain, director with Hem Securities.

Of particular concern is that the Sensex thus far has fallen 2.7 percent this year.

"Going ahead, the progress of monsoon will be closely watched, in addition to the reforms initiatives of the Government. Passage of important bills like goods and services tax are a pre-requisite for the markets to sustain and rise from current levels," Shah said.

"Investors continue to be worried about Greece, monsoon, sell-off by foreign portfolio investors and weak global cues. Some macro-economic data, progress of monsoon, rupee-dollar movement and interests of foreign portfolio investors will shape the trend for the coming week," Jain added.