Sensex slips 661 points on RBI’s cautious stance

Mumbai: The equity markets plunged sharply on Monday following heavy selling in interest rate sensitive banking stocks as a bleak monsoon forecast by the IMD raised concerns about the RBI’s ability to further cut interest rates in the coming months. A hawkish comment from RBI and a downward revision in India’s GDP growth forecast for FY16 also weighed on investor sentiment. As a result, the Sensex plunged 660.61 points or 2.37 per cent to end the trading session at 27,188.38 while the Nifty tanked  196.95 points or 2.34 per cent to end the day at 8,236.45.

The markets opened in the red on weak global cues because of the deepening Greek crisis, but sank relentlessly on the weak growth signals sent out by the RBI governor who said that investment had to pick up if growth was to happen.A deficient monsoon will have a direct impact on rural demand and consumption, which is likely to hamper the much-awaited revival in domestic economic growth. Moreover, a below normal monsoon could also impact crop output that is will put further pressure on domestic inflation.

“The market had already factored in a quarter per cent cut in interest rate by RBI. However, a hawkish comment by RBI and the weather department’s forecast about a deficient monsoon signals that further rate cuts are not possible in the near term,” said Rikesh Parik, VP, equities, Motilal Oswal Financial Services. The major losers on Tuesday were SBI and Axis Bank, which fell 4.28 per cent and 4.20 per cent respectively while ICICI Bank and HDFC Ltd also ended the day with deep losses. According to the provisional data released by the stock exchanges, FPI sold equities worth Rs 594.14 crore.

“RBI has highlighted risk from below-normal-monsoon, food inflation, increase in crude prices and external environment. In spite of the conservative policy of RBI, it has decided to front-load with a 25 basis point cut in interest rate and then wait for further clarity. This diminishes the scope for further cut in the medium-term,” said Vinod Nair, head of fundamental research, Geojit BNP Paribas Financial Services.  The broader markets also remained extremely weak with 1,923 stocks traded on the BSE closing the day lower as compared to just 763 stocks that advanced. The realty index fell 3.83 per cent with shares of DLF, Unitech and Sobha Ltd losing 4.31 per cent, 3.66 per cent and 3.53 per cent respectively.