MARKET WRAP: Sensex tumbles 792 pts; RBI holds rates; rupee hits 74.22/$

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Markets ended lower on Friday after the Reserve Bank of India (RBI) sprung a surprise and kept the repo rate unchanged at 6.50 per cent. Most experts had expected the central bank to hike rates by 25 bps. 

The S&P BSE Sensex lost 792 points, or 2.25 per cent, to settle at 34,377 while the broader NSE's Nifty50 index dropped 283 points, or 2.7 per cent, to close at 10,316. Among specific stocks, shares of oil marketing companies such as HPCL, BPCL and IOCL hit 52-week lows after the government announced that it will cut excise duties on petrol and diesel prices and OMCs will absorb Re 1 per litre.

Heavy losses were also visible in banking stocks with the Nifty Bank index slipping 1.5 per cent. YES Bank, State Bank of India (SBI), Bank of Baroda (BoB), IDFC Bank and ICICI Bank lost up to 5.1 per cent.

RBI policy

Earlier, the monetary policy committee (MPC) of the Reserve Bank on Friday kept the repo rate unchanged at 6.50 per cent in its fourth bi-monthly monetary policy review of 2018-19. The central bank changed the policy stance to 'Calibrated tightening' from 'Neutral'. Calibrated tightening means rate will be maintained or hiked in this cycle.

Rate sensitive stocks took deep cuts despite RBI's status quo. The Nifty PSU Bank index dropped 4.4 per cent to settle at 2,656 levels, while Nifty Auto index tumbled nearly 3.2 per cent. Nifty Realty, too, slipped 3 per cent. Volatility benchmark, India VIX, advanced 7 per cent.

Rupee hits 74.22/$

The Indian rupee Friday crashed below the 74-level against the US dollar for the first time ever after the Reserve Bank kept its key policy rate unchanged. The domestic currency was quoted 55 paise lower at 74.13 against the dollar soon after the RBI announced its monetary policy. 

Investors remained concerned over sustained foreign capital outflows and fears of widening current account deficit in the wake of soaring crude oil prices. READ MORE HERE

Global markets

Asian shares were mostly fragile on Friday after benchmark US Treasury yields surged to a seven-year high and strong economic data fanned concerns about inflation and the risk of faster-than-expected interest rate hikes. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3 per cent, while Japan's Nikkei dropped 0.5 per cent.

3:48 PM

Sectoral trend on NSE

3:46 PM

S&P BSE Sensex gainers and losers

3:44 PM

Market at close

 

The S&P BSE Sensex ended at 34377, down 792 points while the broader Nifty50 index settled at 10,316, down 283 points.

3:23 PM

NEWS ALERT
Rupee at record low, trading at 74.15/$

3:16 PM

MARKET COMMENT Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services

The status quo on policy rates has came against the market expectations of a 25 bp rate hike. But the change in stance from neutral to 'calibrated tightening' is indicative of the likely tightening to come depending on evolving data. The RBI’s surprising policy announcement is the consequence of its confidence on benign inflation, which in turn, stems from the softening of food prices. Since the Indian economy, like many other emerging markets are presently in the cross currents of global developments, the RBI is likely to be on guard keeping a strong vigil of the US 10 year bond yield and crude prices

3:15 PM

COMMENT ON RBI POLICY Abheek Barua, Chief Economist, HDFC Bank 

This is a risky move by the RBI since the market was positioned for a rate hike, purely as a rupee defence. In its absence currency and asset markets could see sharper corrections. A narrow focus on inflation targets perhaps not desirable in the middle of a financial crisis. Change in stance suggests that the rate hike could still come in the coming months

3:09 PM

Nifty PSU bank index tank over 4%

3:05 PM

Quote on Monetary Policy by Mr Shachindra Nath, Executive Chairman and Managing Director, Ugro Capital

RBI maintaining the rates in its monetary policy while may be surprising for the broader market, however, RBI has stuck to the principal of targeting inflation as core framework of the monetary policy. While the currency market and equity market have reacted negatively – this intermediary halt should help soothe the market once the immediate reaction on the mismatch on expectation is over. RBI stand is well thought through and considered given where the broader economic and liquidity challenges are in the current market.

3:04 PM

RBI on global macros

The MPC notes that global headwinds in the form of escalating trade tensions, volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation outlook

3:03 PM

SENSEX HEAT MAP

3:02 PM

NEWS ALERT

System liquidity remained in surplus mode till March 2018: Dy Governor Viral Acahrya

3:00 PM

NEWS ALERT
 

Monetary Policy Committee revises CPI Inflation target lower for Q2FY19 to 4% from 4.6%, H2FY19 to 3.9-4.5% from 4.8% & Q1FY20 to 4.8% from 5%

2:59 PM

MARKET COMMENT Gautam Duggad, Head of Research- Institutional Equities, Motilal Oswal

The market correction is largely driven by macro concerns around rising crude prices and depreciating currency and consequent deleterious impact for twin deficits. Rising bond yields and concerns around liquidity tightening is also keeping the markets anxious.  Valuations, while off from the recent highs, are still rich, especially for mid-caps. We continue to prefer large-caps over midcaps. Correction, nonetheless, offers a good opportunity to accumulate high quality stocks with earnings visibility from a three year perspective

2:59 PM

NEWS ALERT

Real GDP surged to a high in Q1 on the back of strong investments: Urjit Patel

2:58 PM

Factors that are likely to impact inflation

 

First, the government announced in September measures aimed at ensuring remunerative prices to farmers for their produce, although uncertainty continues about their exact impact on food prices. 

 

Secondly, oil prices remain vulnerable to further upside pressures, especially if the response of oil-producing nations to supply disruptions from geopolitical tensions is not adequate. The recent excise duty cuts on petrol and diesel will moderate retail inflation. 

 

Thirdly, volatility in global financial markets continues to impart uncertainty to the inflation outlook. 

 

Fourthly, a sharp rise in input costs, combined with rising pricing power, poses the risk of higher pass-through to retail prices for both goods and services. Firms covered under the Reserve Bank’s industrial outlook survey report firming of input costs in Q2:2018-19 and Q3. However, global commodity prices other than oil have moderated, which should mitigate the adverse influence on input costs. 

 

Fifthly, should there be fiscal slippage at the centre and/or state levels, it will have a bearing on the inflation outlook, besides heightening market volatility and crowding out private sector investment. 

 

Finally, the staggered impact of HRA revision by the state governments may push up headline inflation. While the MPC will look through the statistical impact of HRA revisions, there is need to be watchful for any second-round effects on inflation. 

(Source: RBI policy document)