Indian stock market index Sensex ended sharply lower today despite the Reserve Bank of India cutting its its key policy rate by 25 basis points. The Sensex fell 433 points today, extending losses to the fifth straight day. Banking stocks led the decline today with Nifty Bank index falling 2.4%. In five sessions, the Sensex shed over 1,300 points, wiping out over ₹5 lakh crore of investors wealth.
The Sensex had however started today's session on a firm note, rising as much as 300 points at day's high. But markets plunged soon after the RBI's policy announcement.
Ajit Mishra, vice president for research at Religare Broking, said: "The beginning was upbeat, thanks to firm global markets. But sentiment dented as the RBI lowered its growth forecast which triggered a sharp decline across the board."
The RBI today lowered its GDP growth estimates for the year to 6.1%, from 6.9% earlier.
"Various high frequency indicators suggest that domestic demand conditions have remained weak. The business expectations index of the Reserve Bank’s industrial outlook survey shows muted expansion in demand conditions in Q3," the RBI in its policy statement.
The RBI also said that export prospects have been impacted by slowing global growth and continuing trade tensions.
On the positive side, the RBI said that the impact of monetary policy easing since February 2019 is gradually expected to feed into the real economy and boost demand. The RBI has so far cut its repo rate by a cumulative 135 basis points since February.
The RBI also pointed out that several measures announced by the government over the last two months are expected to revive sentiment and spur domestic demand, especially private consumption.
"Markets have retraced sharply of late and indications are pointing towards further decline ahead. Banking looks weakest among the sectoral pack while others are showing a mixed trend. Nifty has next crucial support at 11,050," added Ajit Mishra of Religare Broking.
Analysts said that a 25-basis-point cut was already factored in. “Given the large revision in growth outlook, the 25-bps reduction seems inadequate," Kotak Institutional Equities said in a note. “A 40-50 bps would have been commensurate along with a dovish guidance."
Banking stocks have led the markets lower in this current leg of decline. The Nifty Bank index has fallen 7.5% in just five sessions.
"Equity markets saw some correction as investors got cautious about declining asset quality in the banking sector, risk of weakening of demand after tepid data prints on auto sales, GST collections and core sector. RBI delivered 25 bps rate cut on Friday which however failed to live up to investor expectations and markets sell-off intensified post the announcement," said Sanjeev Zarbade, VP PCG Research at Kotak Securities.