Mumbai: Indian markets on Thursday dropped over 1% as investors were disappointed after Reserve Bank of India failed to announce measures to boost liquidity in non banking finance companies that are facing default risks.

Benchmark 30-share Sensex index fell 1.38%, or 553.82 points, to 39529.72 while Nifty 50 slumped 1.48%, or 177.90 points, to 11843.75.

"We are bound for some correction in the short-term post the in-line measures of the RBI which was well-done, acknowledging the worries in the economy. No specific comment regarding the ongoing NBFC crisis was taken as a surprise while delay in monsoon added to the fear. Now the ball is in the government’s court, market is eager to know the new reforms to sustain the rally which has got expensive. These patches of corrections will be near-term in nature, till the final budget, consolidation in oil prices and new measures will auger well for the market," said Vinod Nair, head of research at Geojit Financial Services.

Both the indices logged their biggest single day loss of 2019 today.

"No specific measure has been announced that would provide immediate relief to the much-troubled NBFC sector. In the presser the Governor did reiterate multiple times that RBI will do whatever it takes to ensure financial stability of the system. Jittery markets are facing a crisis of confidence with respect to the precariously perched NBFC (including HFCs) and fixed-income mutual fund sectors. It looks highly unlikely that these broad, motherhood statements will assuage market concerns", said Ajay Bodke CEO PMS Prabhudas Lilladher.

"Specific and targeted solutions to rescue these besieged sectors alone can stem the panic and stop a further contagion. Inadequately forceful response to the ILFS bankruptcy has already created fear psychosis among market participants which is getting compounded by an almost blaśe regulatory treatment towards other troubled groups like DHFL, Essel, ADAG etc", Bodke added

Non-banking finance companies and Banking stocks declined. Dewan Housing Finance (DHFL) dived 16%, Shriram Transport Finance 8%, Indiabulls Housing Finance 8%, Edelwiess Finance 7%, L& Housing Finance 6.7%.

Among Banking index, IndusInd Bank fell 7%, Bank of Baroda 7%, Yes Bank 6.3%, State Bank of India 3.8%, Federal Bank 3%, ICICI Bank 1.7%, Kotak Mahindra Bank 1.6%, HDFC Bank 1.2%.

Recently credit rating Crisil has downgraded Dewan Housing Finance Corporation Ltd to default citing delays in debt servicing. The downgrade comes after reports of default by the company in paying interest to the tune of 900-1,000 crore of NCDs, which were due on 4 June.

"A more focused approach is needed to address issues in certain segments like NBFC and Housing Finance, failing which transmission of lower rates to end-borrowers may not happen fast enough", said Mihir Vora Director and Chief Investment Officer, Max Life Insurance.

The broader market also had a bad day as both the BSE Midcap and Smallcap indices slipped by 1.77% and 1.60% respectively.

Among sectors, BSE Oil and Gas was the worst performer tanking 3.04% followed by BSE Capital (-2.81%), Bankex (-2.34%), Finance (-2.27%) and Industrials (-2.13%).

The Reserve Bank of India (RBI) reduced the repurchase rate by 25 basis points to 5.75%, its lowest in nine years. This was predicted by 31 of 43 economists surveyed by Bloomberg. The six-member Monetary Policy Committee (MPC) voted unanimously for a rate cut. The central bank has changed its monetary stance to “accommodative" from neutral and lowered its growth forecast for the current fiscal year to 7% from April's projection of 7.2%.

IndusInd Bank, Yes Bank, State Bank of India, Tata Motors and Larsen and Toubro were the biggest laggards on Sensex pack plunging as much as 6.97%.

Close