Shares of sectors sensitive to interest rate moves, such as banks, automobiles and real estate declined in weak trades today as traders squared off positions after the Reserve Bank of India’s (RBI) rate-setting meeting failed to spring any surprises. Market participants were hoping the central bank would slash a key policy rate, the repo, by 50 basis points (bps), though the official consensus was a 25-bp cut.
Analysts said traders were disappointed with RBI’s cautious stance on easing monetary policy, despite the government’s recent measures to cut the fiscal deficit.
“RBI left the market hanging,” said Tirthankar Patnaik, director and chief economist, Religare Capital. “The market was looking for some guidance on the interest rate direction but RBI did not give it. The 25-bp cut was there in the price,” he said.
The benchmark Sensex fell 112.45 points or 0.6 per cent to end at 19990.90 points. The BSE’s banking index fell 0.5 per cent, weighed down by declines in shares of public sector banks. But for the gains in Axis Bank, which rose 4.3 per cent on news of strong demand for its institutional share sale, and ICICI Bank, the index would have slipped much lower. Portfolio managers said the sell-off in the broader market had more to do with the expiry of the January futures and options contracts on Thursday, rather than disappointment over the outcome of RBI’s credit policy.
“It looked like traders who were short on the market were trying to drag it down before the expiry. The decline in PCR (put/call ratio) indicates there is more to it than selling in the cash segment,” said Sandip Sabharwal, chief executive-PMS of Mumbai-based broker Prabhudas Lilladher.
In banks, analysts said traders who had structured strategies involving bank stock futures on hope that RBI would cut the repo by 50 bps, hurried to cut positions after the central bank’s announcement fell short of expectations. These market participants had bet that public sector banks would rise, while private lenders would underperform if the central bank cut the policy rate by 50 bps.
Sabharwal said ‘quality’ stocks in the financial sector, which includes lenders with better asset quality, could see renewed demand among investors.
Shares of property developers were the biggest laggards today, with the BSE’s realty index declining almost two per cent over the previous day.
Patnaik is optimistic about select realty firms, such as DLF, and some smaller ones. “The story in real estate is not just interest rates. Firms such as DLF are trying to reduce debt by selling assets, which we see as a positive,” he said.
BSE’s auto index dropped 1.1 per cent, with Bajaj Auto, Tata Motors and Mahindra & Mahindra leading the declines.
