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An evening walk down Dalal Street | Black Friday! RBI rate pause spooks stocks, rupee; Sensex cracks 792 pts

October 05
19:06 2018

It was another freaky session for the market on Friday as bears retained control over Dalal Street. The Monetary Policy Committee’s surprise move to hold policy rates spooked stocks and currency alike. The BSE Sensex shed nearly 1,000 points intraday and the rupee fell to a fresh low of 74/$ . Weak global cues also hit investor sentiment.

The selling was broadbased as all sectoral indices collapsed barring IT which got a boost from the currency depreciation. Index heavyweights like Reliance Industries, HDFC, ITC etc, considered most defensive plays for the market, also saw capitulation.

The 30-share BSE Sensex cracked 792.17 points or 2.25 percent to 34,376.99 and the 50-share NSE Nifty plunged 282.80 points or 2.67 percent to 10,316.50, continuing correction for third consecutive session.

Nearly Rs 4 lakh crore worth of investors’ wealth eroded in today’s fall, taking total weekly loss to over Rs 8 lakh crore. For the week, the Sensex lost 5 percent and the Nifty 6 percent.

“The way things have panned out on both domestic and global front, we do not see any chance of overnight reversal. However, possibility of technical bounce can’t be ruled out, citing oversold positions,” Jayant Manglik, President, Religare Broking told Moneycontrol.

In short, he said the sentiment is bearish and traders should continue with “Sell on rise” approach while maintaining caution in stock selection.

The Sensex crashed over 4,600 points and the Nifty 1,400 points from their record highs touched on August 28, 2018.

The Monetary Policy Committee maintained repo rate, at which banks borrow money from RBI in case of shortage of funds, at 6.5 percent but changed their stance from ‘Neutral to ‘Calibrated Tightening’ in consonance with the objective of achieving the medium-term target for CPI of 4 percent within a band of +/- 2 percent.

The RBI also revised its inflation forecast downward to 3.9-4.5 percent for second half of FY19 from 4.8 percent earlier and kept the FY19 growth forecast unchanged at 7.4 percent.

Officials at the central bank expect that both global and domestic financial conditions have tightened, which may dampen investment activity. Rising crude oil prices and other input costs may also drag down investment activity by denting profit margins of corporates. Hence, they preferred to maintain status quo on rates.

The move was contrary to most analyst expectations as they were expecting 25 bps hike in repo rate.

“It seemed to be influenced by risks to future growth from tighter financial conditions and encouraged by softer inflation projections. In the process the MPC chose to go contrary to the stance of most other Central Banks which may not be conducive for the value of rupee,” Deepak Jasani, Head Retails Research at HDFC Securities said.

The Indian rupee hit 74 against the US dollar for the first time after the RBI move, but it recovered from its record low of 74.22 in the late trade. The currency closed at 73.76 a dollar, down 18 paise.

“Rupee was caught off guard and weakened beyond 74, after RBI surprised markets by keeping rates unchanged. Given the rising oil and trade tensions, traders will bet on exports going up, to curb further weakening in the currency,” Anand James, Chief Market Strategist at Geojit Financial Services told Moneycontrol.

Gaurang Somaiya, Currency Analyst, MOFSL expect that the USDINR pair now faces resistance at 75.30 and on the downside support is at 73.40-72.90.

On the broader markets front, the BSE Midcap index fell 2.7 percent and Smallcap lost 2 percent. About three shares declined for every share rising on the BSE.

PSU oil companies – HPCL (down 23.97 percent), BPCL (down 19.89 percent), IOC (15.86 percent), ONGC (14.7 percent) and GAIL (9.76 percent) topped the selling list among Nifty50 stocks for second consecutive session after the government cut excise duty and asked oil retailers to absorb Re 1 litre with respect to petrol/diesel prices which raised fear of subsidy burden.

Reliance Industries (down 6.5 percent), HDFC (3.92 percent), ITC (3.69 percent), Bajaj Finance (7.15 percent), ICICI Bank (2.91 percent) and SBI (4.79 percent) were other losers.

Technology stocks outperformed market as Infosys rallied 2.46 percent, TCS 1.83 percent and HCL Technologies 0.64 percent on rupee fall. Titan Company (1.98 percent), Bharti Infratel (1.58 percent), IndusInd Bank (1.12 percent) and Dr Reddy’s Labs (0.93 percent) were other gainers.

Globally, Asian markets remained under pressure on the final trading day of the week, following a decline overnight on Wall Street. The 10-year Treasury yield touched its highest point since May 2011 caused selling in global markets.

Japan’s Nikkei closed down by 0.8 percent and Hong Kong’s Hang Seng fell 0.2 percent. Among European markets, Germany’s DAX and Britain’s FTSE were down 0.6 percent, and France’s CAC 0.4 percent at the time of writing this article.

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