Home >Markets >Stock Markets >Five reasons why Sensex crashed 554 pts even as RBI cuts repo rate to 9-year low
Investors were also rattled by a downward revision in the country's GDP growth rate to 7% from 7.2% in 2019-20 (Photo: Reuters)
Investors were also rattled by a downward revision in the country's GDP growth rate to 7% from 7.2% in 2019-20 (Photo: Reuters)

Five reasons why Sensex crashed 554 pts even as RBI cuts repo rate to 9-year low

  • Shares of DHFL fell as much as 18.3% to 91.3 on Thursday, their lowest in over five years, after a slew of credit rating downgrades
  • Some analysts say the fall was a mere correction because the rate cut was already factored in

The BSE Sensex plunged 554 points on Thursday despite the Reserve Bank of India (RBI) slashing the repo rate by 25 basis points for the third straight time. The central bank took the decision amid a sharp slowdown in investment activity along with slowing growth in the United States, Europe and China. The broader NSE Nifty fell 1.48% to 11,843.75, while the benchmark BSE Sensex ended 1.38% lower at 39,529.72.

The repo rate now stands at 5.75%, a nine-year low since July 2010. RBI also changed its monetary policy stance from 'neutral' to 'accommodative'. This is the central bank's first rate decision since the landslide victory of Prime Minister Narendra Modi's government last month, which is expected to stimulate India's economy after it grew at its slowest pace in 17 quarters in the March quarter, Reuters reported.

Here are the five reasons why the stock markets weren't enthused by the rate cut.

NBFC jitters

Even as the RBI delivered a rate cut was on expected lines, it failed to assuage investor concerns regarding the NBFC sector.

The NBFC pack witnessed heavy selling pressure following the bond defaults by mortgage lender DHFL on 4 June, which led to a slew of rating downgrades for the company. The stock lost more than 15% on Thursday.

Other losers included Shriram Transport Finance, Indiabulls Housing Finance and L&T Housing Finance, which lost up to 8.61%, PTI reported.

"The rate cut could not infuse positivity, and the decline steepened as focus shifted from policy rates to new emerging short-term tight liquidity situation due to issues like IL&FS, DHFL and its impending impact on other financial institutions," Narendra Solanki, Head Fundamental Research (Investment Services) - AVP Equity Research, Anand Rathi Shares & Stock Brokers, told PTI.

RBI Governor Shaktikanta Das said the central bank is closely monitoring the developments in the NBFC sector and will ensure that financial stability is maintained.

RBI's GDP guidance leads to selling pressure

According to market observers, investors were also rattled by a downward revision in the country's GDP growth rate to 7% from 7.2% in 2019-20, IANS reported. This, due to slowdown in domestic activities and escalation in global trade war.

"Lowered GDP forecast for current year and failure to get any cue from RBI on the liquidity front except general assurance of addressing the situation added to the selling pressure later in the day," Solanki further told PTI.

Banking, energy and capital goods stocks fall the most

The most losses were faced by the banking, energy and capital goods stocks. Top losers in the Sensex pack included IndusInd Bank, Yes Bank, SBI, L&T, Tata Steel, M&M, Bajaj Finance, Vedanta, Tata Motors and RIL.

All sectoral indices ended in the red, with BSE oil and gas, bankex, capital goods, finance, industrials, utilities and energy indices cracking up to 3.04%.

In the broader markets, the BSE midcap and smallcap indices ended up to 1.77% lower. Brent crude futures, the global oil benchmark, fell 0.76% to $61.09 per barrel.

Analysts say the fall is a 'correction'

"As the rate cut was in line with expectations which had already been factored in, the indices did not cheer the rate cut and continued to trickle down," said Umesh Mehta, head of Research, Samco Securities, told PTI.

The Nifty had rallied in the recent days, leading up to the RBI policy. With a 25 basis points repo cut widely anticipated, indices corrected post the announcement... However, I believe that market will soon take cognizance of the change in policy stance to accommodative," Amar Ambani, president and research head, YES Securities told PTI.

Rate sensitive realty stocks fall

RBI's move to slash the repo rate, which may lead to lower home loans, still couldn't enthuse the equity markets. Realty shares faced selling pressure with Godrej Properties plunging 4.13%, Oberoi Realty 3.60%, DLF 2.53%, The Phoenix Mills 2.22%, Omaxe 1.64%, Sobha 1.56% and Sunteck Realty 1.54%, PTI reported.

The realty index fell 1.84% to 2,174.03 at close of trade.

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