RBI rate cut fails to cheer market

Benchmark indices fell 0.3%, export-led stocks fall after rupee gain

The lowering of rates by the Reserve Bank of India (RBI) failed to lift the markets, with benchmark indices ending 0.3 per cent lower.

Experts said the market had alrerady priced in a 25 basis points (bps) cut in the policy rate and the central bank maintaining a neutral stance did little to cheer investors. The benchmark Sensex on the BSE closed at 32,476.74, down 98.4 points or 0.3 per cent. On the National Stock Exchange, the Nifty 50 index fell 33.15 points or 0.3 per cent to end at 10,081.5. A day earlier, both indices had closed at all-time highs.

"This was almost a copybook event, where the Street expected 25 bps and the RBI governor delivered a 25 bps cut," said Motilal Oswal, chairman, Motilal Oswal Financial Services. "The markets are overheated but reluctant to fall, with a huge pile of cash getting built in the system and waiting to be deployed, that will act as a shock absorber at every weakness. We think long-term money should be committed at these levels as well. Barring any global event, the outlook is positive."

The Bank Nifty index, a gauge for the performance of banking stocks, fell 0.3 per cent.

"The 25 bps repo rate cut was on expected lines. The market has largely discounted this action and focus would now shift to global events and how they unfold," added Lakshmi Iyer, chief investment officer-debt at Kotak Mutual Fund.

Export-oriented information technology and pharmaceuticals shares fell the most after the rupee saw a sharp rise of 0.6 per cent. The rupee ended at a two-year high of 63.7 to the dollar, compared to Tuesday's close of 64.08. Sun Pharmaceutical and Dr Reddy's Laboratories fell nearly two per cent each, while Infosys and Tata Consultancy Services declined a little more than one per cent. Among the gainers were NTPC, up four per cent, followed by Hero MotoCorp and Adani Ports which added two per cent each.

"On the one hand, there is an acknowledgment that private sector investment is lacking, and on the other hand, the solution in the form of a 25 bps rate cut does not wholeheartedly address the burning issue of anaemic private investment. Because there is lack of incremental private sector investment, job creation is being hampered. Globally, the world is marching ahead with zero to negative real interest rates, while India has one of the highest, keeping the rupee at alleviated levels and impacting export," said Jimeet Modi, chief executive, Samco Securities.

The benchmark indices have rallied 22 per cent this year on the back of close to Rs 1 lakh crore of investment by foreign institutional investors (FIIs) and mutual funds (MFs). On Wednesday, FIIs bought shares worth nearly Rs 500 crore, while their domestic counterparts sold shares worth Rs 233 crore.

The market breadth on Wednesday was negative, with only 37 per cent of the 2,833 stocks traded on the BSE advancing, 57 per cent declining and the rest remaining unchanged.