The RBI's decision to cut repo rate by a quarter percentage point, which was on expected lines, failed to keep the market in good stead yesterday, as stocks went into a tailspin, especially, after the country's official weather bureau further lowered the monsoon forecast and the central bank governor signalled a pause in its rate cut going ahead.
Amid fears that the weak monsoon projections could further hamper the growth prospects and push up inflation, the Sensex crashed over 700 points in intra-day trade on all-round selling as investors dumped rate-sensitives such as banking, automobile and realty shares while dragging other sectors in today's mayhem.
Despite a positive start to the market when the Sensex gained over 50 points in first few minutes, the tide turned thereafter and the index lingered in negative territory before witnessing a free-fall towards the close to touch the day's low of 27,146.68, down 702 points.
Finally, the 30-share benchmark S&P Sensex ended at 27,188.38, down 660.61 points, or 2.4 percent from previous close. The broader CNX Nifty also retreated sharply, ending 196.95 points lower or 2.3 percent at 8,236.45.
As a result of the broad market sell-off, investors' witnessed Rs 1.98 lakh crore in wealth erosion from previous trading session.
Market breadth ended negative with 1,863 declines against 804 advances on BSE.
"The tone of the RBI was not at all encouraging, and hinting that there would be no further rate cuts during the year came as a big dampener. Also, the forecast that crucial monsoon is likely to be even lower than the previous estimates weighed heavily on investors' sentiment," said G Chokkalingam, founder of Equinomics Research and Advisory.
During its policy announcement, RBI governor Raghuram Rajan lowered projections of the economic growth as measured by GVA (gross value added) to 7.6 percent from 7.8 percent estimated in April due to global factors and likely impact of below normal monsoon.
He further said inflation will start rising to about 6 percent by January 2016, a change in stance from his April announcement where he predicted inflation to close to 5.8 percent by January next year.
Earlier during the day, the RBI governor Raghuram Rajan cut interest rates by 25 basis points (bps) for the third time this year to 7.25 percent from 7.5 percent, but kept cash reserve ratio (CRR) steady at 4% and the statutory liquidity ratio (SLR), or the proportion of government bonds that banks need to hold, constant at 21.5%.
"Although, the rate cut was on expected lines, the market was expecting more. But there was no surprise in credit policy, and his announcement to hold on to rate cuts further came as a bad news for the market. With monsoon also forecast to be lower than earlier estimates, investors didn't want to take any chances in the near term," said Dipen Shah, senior vice president at Kotak Securities.
Post the policy announcement, the India Meteorological Department's (IMD) came out with its revised forecast of monsoon and predicted the rainfall to be lower at 88 percent from the previous 93 percent. The lower-than-expected monsoon forecast announcement triggered massive offloading of shares in banking, automobile and realty shares.
As a result, the BSE Bankex lost heavily, tumbling nearly 3.5 percent to close at 20,654, as rising bad loans and weak fourth quarter earnings fuelled the downfall.
In the banking space, Canara Bank slumped 4.7 percent to Rs 326, State Bank of India plunged 4.3 percent to Rs 266, Axis Bank eased 4.2 percent at Rs 554, ICICI Bank dropped 3.7 percent to Rs 305 and HDFC Bank was down 2.7 percent at Rs 1,009.
Realty shares, too, witnessed steep fall amid worries that weak monsoon forecast and subdued growth could hurt sales and lead to inventory pile up. Several real estate shares crumbled with Prestige Estate Projects crashing 8 percent to Rs 258 and Indiabulls Real Estate tumbling 6.5 percent to Rs 55. Others such as Godrej Properties, DLF, Sobha Developers and HDIL ended 4-5 percent lower.
Auto shares, too, bore the brunt of weak market sentiment. Apollo Tyres skid 4.7 percent to Rs 176, HeroMoto Corp slumped 3.8 percent to Rs 2,608 on weak May sales numbers and MRF fell 3.7 percent to Rs 34,632.
Several blue chip counters in the Sensex pack also lost ground in today's mayhem. FMCG major ITC lost 4 percent to Rs 319, HDFC dropped 3.6 percent to Rs 1,202 and Hindustan Unilever was down 853.
Updated Date: Jun 03, 2015 07:47:02 IST