RBI’s rate cuts fail to enthuse markets

Last week the Sensex closed at 8,325.8 points,shedding almost 566 points,a decline of 6.4 per cent compared to the previous week’s close.

Written by Niti Kiran | Published:March 9, 2009 12:04 am

Last week the Sensex closed at 8,325.8 points,shedding almost 566 points,a decline of 6.4 per cent compared to the previous week’s close.

The events of last week failed to spur the markets. Inflation for the week ended February 21 stood at 3.03 per cent compared to 3.36 per cent in the previous week. The Reserve Bank of India (RBI) announced the long awaited rate cut during the week. It reduced the repo rate by 50 basis points (bps) to 5 per cent and cut the reverse repo rate by 50 bps to 3.5 per cent. A stronger dollar overseas added to the downward pressure on the rupee,which depreciated 6.2 per cent from the day the vote on account was announced (February 16,2009). It is currently trading at Rs 51.73 per dollar.

According to Amitabh Chakraborty,president (equity),Religare Capital Markets,“Inflation is no longer an issue. It is expected to be negative around April-May due to statistical reasons. The rate cut was broadly anticipated by the markets. Lower interest rates actually lower the currency and the rupee is expected to weaken further. Foreign institutional investors (FIIs) are pulling out money as they expect poor Q4 results and because of the possibility of formation of a coalition government,which could affect policymaking.”

All the sectors took a hit last week. Banks and FMCG declined the most,falling nearly 12 per cent and 9.3 per cent respectively compared to the previous week. Information Technology and Healthcare were the least hit: they declined by just 1.1 per cent and 2 per cent respectively.

The stock markets are expected to continue reeling under pressure. “The markets are expected to taste the October lows. But they are also expected to bounce back on signs of weakening of dollar which could bring liquidity into the equity markets,” says Chakraborty.

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