The Sensex ended 1.1% lower at 37,673 (Reuters)
The Sensex ended 1.1% lower at 37,673 (Reuters)

Sensex slumps over 400 points despite RBI rate cut, extends losses to 5th day

  • The losses came despite the Reserve Bank of India cutting interest rates by 25 basis points, the central bank's fifth rate cut this year

Indian stock market indices Sensex and Nifty fell sharply today, extending losses to the fifth day. Banking and auto stocks led the decline today. The losses came despite the Reserve Bank of India cutting interest rates by 25 basis points, the central bank's fifth rate cut this year. The Sensex ended 1.1% lower at 37,673. The Nifty settled 1.2% lower at 11,174.

Analysts said the quantum of the rate cut was already factored in by the markets. "For stock markets this will be non-event from a short term point of view," said Jimeet Modi, founder and CEO, Samco Securities.

The RBI today also revised its growth forecast for this year down to 6.1% from 6.9%. "Given the large revision in growth outlook (6.1% from 6.9%), the 25 bps reduction seems inadequate. A 40-50 bps would have been commensurate along with a dovish guidance," Kotak Institutional Equities said in a note.

The RBI maintained its "accommodative" stance and said it would keep that position "as long as it is necessary" to revive economic growth, while ensuring inflation remains within target.

Leading stock indexes lower were banks, which have already suffered bruising declines in recent sessions. The Nifty Bank index today fell 2.4%.

Kotak Bank, ICICI Bank, Bank of Baroda and RBL Bank fell over 3% while HDFC Bank declined 2.7%.

Indian stock markets have fallen nearly 3.5% in 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 of Kotak Securities.

India's economy grew by just 5% in the June quarter, its slowest pace in more than five years, prompting the government to announce many measures aimed at boosting growth, including a sharp cut in the corporate tax rate.

"Consumer demand, sentiment and corporate profitability is at a multi-year low given poor sales of automobiles, slowdown in real estate, rising corporate delinquencies, pressure on exports and trade wars. Upcoming festival season is key to 2HFY20," said domestic brokerage Prabhudas Lilladher.

The broader markets also came under pressure with BSE midcap index falling 0.9% and smallcap index 0.8%.