MUMBAI: The sensex tanked by over 400 points from its intra-day high on Monday after the Reserve Bank did not reduce key policy rates, dashing the expectations that had propped up the markets last week.
The RBI decision came as a shocker for Dalal Street investors who were expecting at least a 25 basis points cut (100 basis points = 1 percentage point). As a result, the sensex closed 244 points lower at 16,706, with the interest rate-sensitive sectors like banking and real estate stocks leading the slide. The day's losses left investors poorer by Rs 78,000 crore with BSE's market capitalization now at Rs 58.8 lakh crore.
In the forex market, the rupee weakened further against the US dollar by 42 paise to again close near the 56 mark, at 55.92. In the bond market too, yields on government securities hardened because of the RBI decision. The yield on the benchmark 10-year government security rose rapidly to close at 8.17% per annum, compared to 8.04% on Friday.
Part of the slide in rupee and rise in bond yields could also be attributed to the Fitch's decision to change India's ratings outlook to negative from neutral. However, the ratings agency's move came after the close of stock exchanges.
The day's session began on a strong note after a favourable Greece election result that increased the chance of the country remaining within the Eurozone. The sensex rallied 160 points in the opening hours, but selling started soon after the RBI announced that it had decided not to change repo rate or cash reserve ratio (CRR). The main reason for the day's selling was the fear that unchanged policy rates would further slow down growth at a time when the liquidity situation was tight. For RBI, however, it was a choice between growth and inflation, and the central bank decided to target price rise at the cost of growth.
Market players, however, pointed their fingers at the government for not doing enough to perk up the slowing economy. "The growth-inflation conundrum has reached a stage where only swift well-rounded action from all stake holders can alleviate matters," said Akshay Gupta, MD & CEO, Peerless Mutual Fund. "Policy action on reduction of subsidies, flow of FDI and FIIs, reduction in current account deficit and addressing supply-side measures will trigger dovish RBI policy," Gupta said.
Dealers said the selling was mostly because of the disappointment from the RBI policy decision as there was a huge build-up last week in anticipation of a rate cut. Among the sensex stocks, SBIclosed 4.4% lower at Rs 2,088 while Sterlite lost 4.3% to Rs 96 and ICICI Bank was 3.3% off at Rs 817. Of the 30 sensex stocks, only two — Tata Steel and Bajaj Auto — closed higher, each up about 1%.
Source:timesofindia.indiatimes.com
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