The Sensex fell for the first time in five sessions, as sectors sensitive to interest rates such as banks and real estate dropped after the Reserve Bank of India (RBI) kept its policy rates unchanged, voicing a more hawkish stance than expected.
Though analysts had largely expected rates to stay on hold, especially on the eve of the union budget announcement, the markets had not ruled out a surprise cut in the repo rate and some had anticipated such a move would at least come by April.
Instead, RBI’s statement warning about inflationary pressures from oil prices, the government’s finances and the weaker rupee cast doubts about both the timing and magnitude of future rate actions. The focus is now expected to shift to the budget for the next fiscal year to be unveiled tomorrow, which investors will scrutinise for how it will impact specific sectors.
“By keeping rates unchanged, RBI is signaling that it does not expect inflation and inflationary expectations to reduce in the immediate future,” said Kishore Bang, co-founder & director at investment firm Nirmal Bang Group.
The main 30-share BSE index fell 1.6 per cent, or 243.45 points to 17,675.85 points, marking its biggest one-day loss since March 5. The 50-share Nifty index lost 1.5 per cent, in its biggest fall since February 27.
Banks were among the leading decliners, with the sector’s index falling 2.7 per cent. They had rallied this week after RBI surprised the markets with a cut in the cash reserve ratio late tomorrow, a move that was seen injecting liquidity in a sector facing a cash crunch.
The absence of follow-up RBI action reversed some of those gains, with State Bank of India ending down 2.4 per cent after surging 10 per cent over the previous four sessions.
The real estate sector, which has been reeling from high interests, also took a hit, with the sub-index ending down 2.9 per cent. DLF Ltd, the largest listed developer, fell 4.9 per cent.
Also weighing on the market were railway-related shares, which dropped for a second day as a proposed fare hike for passengers ignited a political crisis, adding to the wariness of investors disappointed over the rail ministry’s budget unveiled yesterday.
Texmaco Rail and Engineering fell 5.6 per cent. Among other decliners, shares of Anil Dhirubhai Ambani Group companies Reliance Power and Reliance Communications fell over 3 per cent each after the National Stock Exchange excluded the two from its benchmark Nifty-50 share index, starting from April 27.
