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Shares fell for a consecutive day on Tuesday after the Reserve Bank of India (RBI) decided to leave key policy rates unchanged. Traders were seen reversing long positions created last week in anticipation of a cut in interest rates. However, markets found comfort in the signal given by the RBI that rates might be cut early next year, helping recover some of the losses.
The S&P BSE Sensex touched a low of 28,386, falling 160 points, or 0.6 per cent, immediately after the policy announcement on Tuesday. However, it recovered from the lows to end at 28,444, down 115 points or 0.4 per cent. The NSE Nifty hit a low of 8,504 but closed at 8,524.7, down 0.36 per cent. Last week, benchmark indices had rallied 1.2 per cent on rate cut expectations.
Participants said certain sections of the market had factored in a rate-cut based on the improvement in the inflation data and the GDP growth numbers. “There was a good amount of expectation build-up last Friday across counters, particularly in those of the PSU (public sector units) and private banking sector stocks. That led to some amount of unwinding of long positions as some sections of the market did expect rates to be cut,” said Yogesh Radke, head of quantitative research, Edelweiss Securities.
After an initial sharp drop of one per cent, the CNX Bank Nifty finally settled at 18,555, up 0.2 per cent. Analysts said traders were seen booking profits in some of the PSU lenders, some of which had risen as much as 10 per cent last week on rate cut hopes. Private banks were up in the two-three per cent range during the time. Since a large section of the market did not expect rates to be cut, losses were limited, analysts said. What lent optimism to an otherwise nervous trading session was the RBI statement about possible rate-cuts early next year.
Meanwhile, auto sector stocks saw a sharp negative reaction to the RBI decision to leave rates untouched. The CNX auto index was down 0.9 per cent with Mahindra & Mahindra leading the decline. The stock was down 2.5 per cent at Rs 1,263 a share followed by Tata Motors, down 1.3 per cent and Eicher Motors and Bajaj Auto, down one per cent each.
Among other sector indices, metals and health care gauge were up closer to one per cent. The CNX IT index was the biggest loser, down 1.4 per cent.
Foreign portfolio investors were net-buyers on Tuesday at Rs 106 crore, according to provisional exchange data. Domestic institutions were net-sellers at Rs 40 crore.
Going forward, analysts expect the Nifty to remain volatile as investors rush to book profits made last week.
According to market participants, the Nifty and Sensex could see a dip of three to five per cent. The Nifty could slip to 8,150-8,200 levels, analysts said.
On Tuesday, volatility index India VIX was down six per cent to 12.3.
