Markets continue free fall post RBI meet; rupee hits 73.76

Sensex plunges 1,850 pts during week.

The BSE Sensex plunged 792.17 points to end at a near six-month low of 34,376.99, while the broader NSE Nifty dropped 282.80 points to 10,316.45.

Stock indices Friday slumped for the third session in a row and the rupee fell to record low of 74 per dollar after the Reserve Bank unexpectedly kept the interest rates unchanged in the bi-monthly monetary policy review. The BSE Sensex plunged 792.17 points to end at a near six-month low of 34,376.99, while the broader NSE Nifty dropped 282.80 points to 10,316.45. This was the fifth straight weekly loss for the benchmark indices. The Sensex declined by a massive 1,850 points or 5.10 per cent, and the Nifty lost 614 points or 5.50 per cent, during the week.

The currency opened higher at 73.56 a dollar against its previous record closing low of 73.58. It recovered to a high of 73.42, but failed to sustain the momentum and plunged to 74.23 after the RBI’s policy announcement. It finally closed at 73.76, down by 18 paise or 0.24 per cent, marking its fourth straight session of decline. “Markets were expecting at least 25 bps repo rate hike and measures to stabilize the rupee. But the status quo in the policy has disappointed markets.

Given the sell-off in the domestic equities and higher crude oil prices, the rupee is now expected to move towards 75-76 levels in the next couple of sessions. The recent set of economic data clearly point towards strength in the US economy. As a result, the Federal Reserve is expected to continue on the path of aggressive interest rate hike in coming months. Overall, the situation is quite worrisome for the rupee,” said Rushabh Maru, Research Analyst, Anand Rathi Shares and Stock Brokers.

The RBI maintained status quo on the benchmark interest rate but warned that rising oil prices and tightening of global financial conditions pose substantial risks to growth and inflation. The central bank changed its policy stance to ‘calibrated tightening’ from ‘neutral’, while affirming its commitment to achieve the medium-term objectives to contain price rise. The markets were expecting the RBI to go for 25-50 basis points hike in Repo rate.

“The status quo policy was quite surprising while under shooting inflation and recent fuel tax cut may give some leeway to the cautious sentiment. However, rupee weakened further and the market dived to lower lows as risk of fiscal deficit and rise in US bond yield still impacting the outflow of foreign money,” said Vinod Nair, head of Research, Geojit Financial Services.

“The RBI is likely sending a message to the markets that they won’t use interest rates as a currency defense and thus have not hiked but at the same time to maintain its inflation credibility they have tightened the stance. In July 2013, post the taper tantrum, the RBI had hiked interest rates sharply, which further depressed sentiment and led to a sharper sell-off in bonds, equities and currencies. With this pause, at a time when the Indian rupee has sold off sharply and markets expectations were riding high on a 50 bps rate hike, the RBI seems to be signaling that they don’t yet see the reason to panic on the external front,” said Arvind Chari, Head – Fixed Income, Quantum Advisors.
ONGC was the top loser in the Sensex pack, tumbling 15.93 per cent, followed by RIL 6.31 per cent. Other major losers were Adani Ports 5.36 per cent, SBI 4.73 per cent, Bharti Airtel 4.27 per cent, Maruti Suzuki 4.18 per cent and Yes Bank.

Infosys emerged as the top gainer by spurting 2.19 per cent, while TCS rose 1.88 per cent. Shares of oil marketing companies bore the brunt and tumbled as much as 25.18 per cent after the government on Thursday cut excise duty on petrol and diesel by Rs 1.50 per litre and asked oil firms to absorb Re 1 a litre of prices. Shares of HPCL crashed 25.18 per cent, while BPCL tumbled 21.11 per cent and IOC 16.99 per cent.

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Sector-wise, the BSE oil & gas index lost a massive 12.68 per cent, followed by PSU 7.06 per cent, infrastructure 5.76 per cent, metal 3.45 per cent, auto 3.16 per cent, realty 2.70 per cent, FMCG 2.33 per cent, capital goods 2.26 per cent, power 2.18 per cent and bankex 1.93 per cent. However, IT index jumped 1.11 per cent, teck 0.70 per cent and consumer durables 0.62 per cent. The broader markets showed a similar trend, with the BSE mid-cap index falling 2.39 per cent and small-cap gauge losing 1.82 per cent. in a research note.