BSE Sensex dives 205 points.
Mumbai : Equities suffered for the second straight session on Wednesday after the Reserve Bank (RBI) kept interest rates on hold but raised the inflation forecast, dashing medium term rate cut hopes and sparking a sell-off in banking stocks. The benchmark BSE Sensex slumped 205 points to end at 32,597.18, while the broader Nifty finished at 10,044.10, down 74.15 points.
The six-member Monetary Policy Committee (MPC), headed by Reserve Bank Governor Urjit Patel, kept the policy rate unchanged at six per cent on expected lines but raised the inflation forecast for the remainder of the fiscal to 4.3-4.7 per cent.
The central bank kept the economic growth forecast unchanged at 6.7 per cent for the fiscal ending March 31. The 30-share index declined by 205.26 points, or 0.63 per cent, to 32,597.18 after hitting a low of 32,565.16 soon after the central bank announced its policy decision. The wider Nifty hit a low of 10,033.35 before finishing at 10,044.10, down 74.15 points or 0.73 per cent. It had touched a high of 10,104.20 in early trade. Interest rate-sensitive stocks took a beating, dragging the BSE banking index down by 1.23 per cent. SBI, ICICI Bank, Axis Bank, HDFC Bank, Bank of Baroda, Punjab National Bank and Yes Bank fell by up to 2.27 per cent.
“Given that interest rates are unlikely to reduce at least in the near to medium term, rate sensitive stocks slid due to rising oil price and concern over fiscal slippage,” said Vinod Nair, Head of Research, Geojit Financial Services.
In sync with overall trend, the rupee too weakened to quote at 64.55 against the dollar intra-day.
Sun Pharma emerged as the worst performer among Sensex constituents by falling 2.31 per cent, while Bajaj Auto declined 1.65 per cent. Other losers, apart from bank stocks, were ONGC, L&T, Tata Motors, M&M, Tata Steel, Bharti Airtel, ITC Ltd, NTPC, Dr Reddy’s, Hero MotoCorp, and Asian Paints.
Bankers on the rate call
“The RBI’s decision to keep the policy rate unchanged today is in line with expectations. It has displayed prudence in highlighting adverse risks to the inflation trajectory. It has also taken cognizance of further improvement in growth prospects on account of various structural reforms implemented by the Government including bank recapitalisation. It is heartening to note that the RBI has also communicated greater clarity on the liquidity framework indicating that it is ready to deploy both short term and durable tools to absorb or inject
liquidity as the need arises.”
— Chanda Kochhar, MD and CEO, ICICI Bank.
“The RBI’s MPC would have probably kept this aspect in mind as well. Moreover, interest rate policy should also ensure that yield generating opportunities available to overseas funds are not wiped out significantly or else there is a risk of fund outflows and a steep INR depreciation. The $ 31 billion forward position built up by RBI may be seen as a cushion against such an eventuality. Growth estimates, however, has been kept unchanged. India is now at a juncture where on the real sector, Government is undertaking reform measures while the MPC ensures monetary stability through its rate setting policies,”
— Dinabandhu Mohapatra, MD & CEO, Bank of India.
“The tone of the RBI policy is noticeably cautious on prices and positive on growth. It is also to be noted that the future policy actions will largely depend on data facts. Augmenting the increase in Digital payments, the introduction of differentiated Merchant Discount Rate and a cap on the absolute amount of MDR for Debit card transactions is expected to increase acceptance of Debit card usage and will also bring down the cost of transactions for small merchants. Overall the outlook of MPC is supportive to the growth of the Economy.”
— Ashwani Kumar, Chairman & Managing Director, Dena Bank.