Mumbai: Indian shares fell to a one-week low on Tuesday, led by a decline in rate-sensitive stocks such as HDFC Bank Ltd, after India’s central bank lowered its key policy rate, but made further rate cuts conditional on government moves to control fiscal deficit.
The Reserve Bank of India (RBI) cut the policy repo rate by 25 basis points and even unexpectedly reduced the cash reserve ratio (CRR), to help support an economy set to post its slowest annual growth rate in a decade.
The central bank stressed that halting a slide in growth had become critical, but it went on to list constraints, notably worryingly high current account and fiscal deficits, and the risk that inflation could flare again.
Analysts said the government’s action around the budget is important to predict the near-term movement of the markets. “Policy was broadly in-line with market expectations, but there has been a sense of caution mainly due to widening current account deficit and inflation,” said Kaushik Dani, fund manager at Peerless Mutual Fund. “The way budget pans out will determine how RBI formulates its March policy,” added Dani.
The benchmark BSE index, Sensex, fell 0.56%, or 112.45 points, to end at 19,990.90, closing below the psychologically important 20,000 mark. The broader NSE index, the Nifty, fell 0.41%, or 24.90 points, to end at 6,049.90 points, marking its lowest close in a week.
RBI’s caution comes ahead of what is expected to be a volatile week, with continued earnings results and the expiry of derivatives on Thursday, while the Federal Reserve is set to conclude its two-day meeting on Wednesday. Rate-sensitive stocks fell after the RBI made further rate cuts conditional on government’s efforts towards fiscal consolidation, making hopes of aggressive easing cycle this year highly improbable.
Among banking stocks, shares of HDFC Bank fell 2.61%, while those of State Bank of India ended 1.32% lower. Shares of real estate developer DLF Ltd fell 1.29%, while those of Tata Motors Ltd fell 1.59%.
Oil and gas stocks declined on profit-taking, with shares of Oil and Natural Gas Corp. Ltd falling 0.66%, having gained 25% in January after the government’s move to allow higher diesel prices and due to expected changes to gas pricing.
Reliance Industries Ltd fell 1.68%, marking its fourth day of losses, on fresh concerns over its gas output from KG-D6 block, dealers say.
Shares of Century Textiles and Industries Ltd ended 3.75% lower after the company reported a loss of Rs.29.19 crore in October-December earnings.
However, among stocks that gained, Axis Bank Ltd ended 4.3% higher as dealers cited good demand for a share sale of up to $1 billion.
Adani Ports and Special Economic Zone Ltd rose 6.46% after the company said it would sell a majority stake in Australia’s Abbot Point port to the Adani family.
Adani Port’s stake sale in its Australian port would reduce the Indian company’s consolidated debt by around Rs.11,000 crore ($2.04 billion), while the reinvestment of the cash flows for domestic growth opportunities would be a positive, brokerage Edelweiss says in an email to clients.
Shares of Idea Cellular Ltd ended 0.62% higher ahead of earnings. Reuters