Representational Pic
Representational Pic

Mumbai: The fifth successive rate cut failed to cheer Indian investors as the Reserve Bank of India sharply lowered its growth projection for this fiscal to 6.1% from 6.9% earlier, triggering a sell-off on Friday.

The central bank cut the repo rate by 25 basis points (one basis point is one-hundredth of a per cent) to 5.15% from 5.40% but Sensex and Nifty declined over 1% as growth worries took the centre stage.

Private banks took much of the fall on the bourses followed by financial services scrips. ICICI Bank, Kotak Mahindra Bank Ltd and HDFC Bank fell over 2 to 4% while the already stressed mortgage lender Indiabulls Housing Finance Ltd closed over 8 per cent lower.

The benchmark Sensex, which opened with a 250 point gain, settled 433.56 points lower at 37,673.31, while the Nifty closed at 11,174.75, lower by 139.25 points.

"Despite the central banks and governments synchronized effort to offset a slowdown in the economy, investors have taken a pessimistic view due to continued downward revision in GDP estimate and new stress in the banking system," said Vinod Nair, Head Of Research at Geojit Financial Services.

More importantly, Nair said that the government's measures have the potential to enhance consumption and spur investment but a lag in transmission of cumulative rate cuts is adding another layer of complexity in the recovery.

In an unanimous decision by the committee, all the members of the MPC voted to reduce the policy repo rate and continue with the accommodative stance of monetary policy.

Chetan Ghate, Pami Dua, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das voted to reduce the repo rate by 25 basis points while Ravindra H. Dholakia voted to reduce the repo rate by 40 basis points.

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