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    Why stocks tanked after RBI rate cut? It’s something else

    Synopsis

    Most rate-sensitive bank, auto and realty stocks were trading in the negative zone.

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    At first glance, it appears that the 25 basis points repo rate cut by the Reserve Bank of India (RBI) and its change in policy stance to ‘accommodative’ from ‘neutral’ failed to please the market, with equity barometer Sensex plunging 600 points right after the policy announcement.

    Market observers say the move was expected and the market was seeking a positive surprise. The market has extended the fall, as the policy is still ‘reactive’ and not ‘proactive’.

    “The market was expecting a positive surprise and the 25bps rate cut and change in stance were already factored in,” said Pankaj Pandey, Head of Research at ICICI Securities.

    Bank Nifty fell 1.5 per cent following the money policy. Most rate-sensitive bank, auto and realty stocks were trading in the negative zone.

    The fact that RBI didn’t have much to say on addressing the liquidity crisis killed market enthusiasm over the rate cut. The fact is, the liquidity crisis remains a pressing reality and RBI needs to do much more to address that, analysts said.

    “While the 25 basis points rate cut was in line with our expectation, but concerns over growth and liquidity challenges continue to linger. The market is not necessarily cheering the rate cut as it had already factored it in and something more was expected,” said Naveen Kulkarni, Head of Research, Reliance Securities.

    Globally, a sharp drop in crude oil prices actually offered positive cues to the Indian market, though Asian markets traded weak amid concerns over possible impact of the trade tensions on global growth. A Fed signal earlier this week about its readiness to lower interest rates to deal with a potential slowdown kept US markets upbeat overnight.

    Now, the progress of the monsoon and the Union Budget would be the two factors the market would be looking at.

    Some analysts said there may not be big surprises in the Union Budget. “We don't expect any surprises from the Budget, because it will be the continuation of the same government,” Pandey said.

    Sunil Subramaniam, MD of Sundaram Mutual, said while the broader market consensus was for a 25 basis points rate cut, one section of the market was punting on a bigger hike and they have been disappointed.

    Secondly, everybody was aware that RBI stance would be accommodative. “The market feels what the economy needs is a boost to consumption demand and it could have come from some kind of a mechanism to address the NBFC crisis, which did not come about,” he said.

    The Sensex fell 287 points to 39,797 around 12:35 pm. Nifty was 92 points down at 11,930 at the same time.

    Rating agencies Crisil, CARE and ICRA downgraded commercial papers (CP) issued by DHFL to ‘default’ or ‘D’ category after the company missed an interest payment on its non-convertible debentures (NCDs). There are rumours in the market that the home financier stares at another default on dues scheduled for Friday.

    Another company, Eros International Media, said Care Ratings have assigned its bank facilities ‘default’ rating, adding to a slew of sudden aggressive measures that rating agencies have taken recently.
    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

    38 Comments on this Story

    Avnindra Baranwal469 days ago
    Increase Tourism (religious or whatever), Infra spending, SME offerings, Gov spending on value/assets. Boost consumerism. Allow people to buy more housing, shops etc.
    ss470 days ago
    Govts dramas wont work for long. The economy is down in the dumps , NBFCs are in ICU and companies going bust. Where has all the money been siphoned. RBIs false moves wont help. Real people need to get down to real work now. Punishing defaults will help
    Singh470 days ago
    Indian companies specially in construction, engineering and manufacturing have to aggressively find markets abroad specially Africa, South America, Iraq plus other countries of the Middle East same as South Korean companies. South Korean big and small companies keep getting contracts in Iraq and other countries while Indian companies are out. Each major company should go it alone instead of depending on a CII office or the Indian embassy as both are useless in promoting Indian businesses.
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