BackStocks fall nearly 1% as bulls pause after RBI policy surprise
The benchmark Sensex closed 0.82% lower at 40445.15, while Nifty declined 0.85% to 11916.70 points; equities dragged down by banking and auto stocksYield on 10-year government bond has surged 20 basis points in last two days after the RBI policy decision
PremiumMumbai: Equity markets fell nearly 1% on Friday, dragged down by banking and auto stocks, and weak sentiment after the central bank cut India’s growth forecast for fiscal 2020 to 5% and kept key interest rates unchanged.
The benchmark Sensex closed at 40,445.15, down 0.82%, or 334.44 points, while the Nifty declined 0.85%, or 96.9 points, to 11,916.70 points.
On Thursday, the Reserve Bank of India (RBI) revised its inflation forecast for the second half of the current fiscal year from 3.5-3.7% to 4.7-5.1%, and reduced the growth forecast for FY20 from 6.1% to 5%. RBI noted that a delay in revival of domestic demand, further slowdown in global economic activity, and geopolitical tensions could pose downside risks to growth. India’s economy grew at 4.5% in July-September, the slowest pace in more than six years.
“Lower lending rates are unlikely to lift growth unless demand and sentiment also improve, perhaps from fiscal measures in the February budget as the RBI appears to suggest. India’s extended valuations may already be pricing some of this in, though, leaving us defensive," said Jefferries India in a note to investors.
Banking stocks came under pressure after Vodafone Idea chairman Kumar Mangalam Birla said the company will have to shut shop if there was no relief from the government following the Supreme Court ruling requiring it to pay statutory dues of ₹40,000 crore to the department of telecommunications (DoT) within three months.
Shares of the telecom major fell 5.34% on Friday.
Banking stocks also declined sharply on concerns over rising government security yields, which spiked 20 basis points (bps) in the last two trading sessions to a one-month high of 6.66%. Yield of the 10-year government bond surged 20 bps after RBI’s policy review, as analysts said future rate cuts hinge upon softer inflation.
On Friday, the 10-year bond yield rose 5 bps to 6.66%, compared with the previous close of 6.61%. Bond yields and prices move in opposite directions.
Shrikant Chouhan, senior vice-president, equity technical research at Kotak Securities, said: “The markets fell largely on the back of a sudden rally in the 10-year G-Securities. This triggered weakness in financials and other rate sensitive sectors. Also, the breadth of the broader market has turned poor."
Global stocks advanced as US President Donald Trump suggested trade talks with China were making progress ahead of 15 December, when the next tranche of US tariffs kick in.
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