Disappointment over RBI’s rate cut dampens market sentiments (Weekly Review)

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Mumbai, April 9 (IANS) Disappointment over the extent of reduction in the key lending rates, along with caution ahead of the quarterly results season, had the Indian equity markets plunging during the just concluded weekly trade.

Further, investors were spooked by a likely announcement on US rate hike. This diminished the foreign funds inflow into the equity markets.

The subdued weekly trade, led to the barometer 30-scrip sensitive index (Sensex) of the BSE to plummeting by 596 points or 2.35 percent to 24,673.84 points.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) receded by 157.85 points or 2.04 percent to 7,555.20 points.

“Markets declined this week led by correction in the rate sensitive sectors post the monetary policy,” Vaibhav Agarwal, vice president and research head at Angel Broking, told IANS.

“BSE Bankex was down more than four percent this week followed by the auto index which was down 2.4 percent.”

The equity markets weakened despite a monetary policy easing by the country’s apex bank. Investors discounted a 25 basis points cut in key lending rates by the Reserve Bank of India (RBI) on Tuesday.

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The rate cut was announced during RBI’s first bi-monthly monetary policy review for 2016-17.

Market analysts stated that investors expected a larger rate cut, as they had already factored in a 25 basis points reduction in key lending rates.

Nevertheless, Pankaj Sharma, head of equities for Equirus Securities elaborated that: “Notwithstanding the lesser than the most optimistic expectations on RBI move, we think 25 basis points cut was a prudent decision.”

“More importantly, the measures central bank is taking to increase liquidity in the system are commendable and we think they are more important than headline numbers as such.”

Apart from caution on the RBI rate cut, the release of FOMC (Federal Open Market Committee) minutes deterred investors from chasing prices.

A hike in the US interest rates is expected to lead away Foreign Portfolio Investors (FPIs) from emerging markets such as India.

According to Anand James, chief market strategist, Geojit BNP Paribas Financial Services, the FOMC minutes threw no surprise and disclosed that the US Federal Reserve has taken a cautious stand on future rate hikes.

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“However, the US markets were largely jittery, possibly nervous ahead of Q1 (first quarter) results scheduled for release shortly,” James cited.

“Even though indices remained south bound, market breadth was positive on several days, possibly acknowledging India’s own version of QE (quantitative easing), wherein the central bank has taken measures to improve liquidity.”

Besides, the nervousness surrounding the start of the domestic fourth quarter (Q4) results season eroded investors’ confidence.

The Q4 results season started from April 8. Infosys is expected to be the first blue chip to come out with its results on April 15.

James added that FIIs (foreign institutional investors) had incidentally turned net sellers in the second half of last week.

For the week under review, data with stock exchanges revealed that FPIs (Foreign Portfolio Investors) divested stocks worth Rs.877.26 crore.

The same data showed that domestic institutional investors (DIIs) sold stocks worth Rs.178.22 crore.

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However, figures from the National Securities Depository Limited (NSDL) showed that the FPIs invested Rs.7,624.87 crore or $1,150.09 million in the equity and debt markets from April 4-7.

The rupee, too, weakened during the truncated week ended April 7. The domestic currency markets were closed on April 8, on account of Gudi Padwa.

On a weekly basis, the rupee weakened by 22 paise to 66.46-47 (April 7) against a US dollar from its previous close of 66.24-25 (March 31) to a greenback.

Analysts attributed the rupee’s weakness to the outflow of foreign funds from the equity and debt markets.

“Post RBI policy, rupee has seen depreciation as sell-off in equity markets and dollar buying from central bank supported prices,” said Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities.

“However, hedging from exporters going into a long weekend ensured that rupee does not depreciate too much.”

(Rohit Vaid can be contacted at [email protected])

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