Mumbai: India’s benchmark Sensex plunged a third day in a row on Friday, after the Reserve Bank of India’s (RBI) policy review disappointed investors— even as it left key rates unchanged, the central bank failed to provide concrete solutions to stop the depreciation of the rupee and resolve concerns over non-banking finance companies (NBFCs).
On Friday, BSE’s 30-share Sensex fell 2.25% or 792.17 points to close at 34,376.99, its lowest close since 23 May. National Stock Exchange’s 50-share Nifty shed 2.67% or 282.80 points to close at 10,316.45 points, its lowest close since 4 April.
After two successive rate hikes, the RBI monetary policy committee surprised the market by keeping the key policy rates unchanged, citing a benign inflation trajectory and downward revision to inflation projection. Investors await the September quarter earnings for further cues. For the week, Sensex and Nifty eroded 5.11% and 5.6% or 1,984 points and 654 points respectively. It was Nifty’s biggest fall ever in absolute terms, and Sensex’s biggest fall in terms of points in a decade.
In percentage terms, it was Sensex and Nifty’s biggest weekly fall since 14 February 2016.
“In my view, at least a 25 basis-point rate hike was required. That would have helped to stem the currency fall to some extent. Their comments on the NBFC (non-banking finance companies) issue while they are already in a jittery state, have also confused markets,” said Amisha Vora, joint managing director at Prabhudas Lilladher Pvt. Ltd. A basis point is one hundredth of a percentage point.
RBI said on Friday it has been trying to ensure the foreign exchange market remains liquid and is not targeting any particular level.
“The RBI’s response to these unsettled conditions has been to ensure the foreign exchange market remains liquid with no undue volatility,” RBI governor Urjit Patel said after monetary policy meeting,
The rupee deteriorated further, and fell to 74.22 to the dollar. It closed at 73.77 against Thursday’s close of 73.58. For the week, rupee has eroded 1.73%
“The rupee will now track oil prices very closely, since there is a status quo on rate,” added Vora.
Investors also felt the RBI could have been more concrete in pronouncing measures to tide over the recent concerns over NBFCs.
Many NBFC stocks have eroded value over the past weeks after IL & FS defaulted on loan payments. This , coupled with a liquidity crisis, has weighed on NBFC stocks.
N.S. Vishwanathan, deputy governor, RBI, said the central bank is closely monitoring the NBFC sector.
“There is an ALM (asset liability mismatch) guideline for them but we are looking at strengthening them so that we can avoid this rollover risk going forward. We believe that isolated events should not be seen as having any system-wide indications,” Vishwanathan added.
Investors were not pacified.
“I think to a great extent damage to sentiment is done (for equity markets) but it doesn’t seem markets have bottomed out. Any small rebound is a possibility, but FIIs (foreign institutional investors) won’t come buying just yet,” said Vora. For the year to date, FIIs have sold a net of $12.24 billion of Indian debt and equity, of which $2.5 billion relates to equities. Domestic institutional investors, on the other hand, have invested a net of ₹87,188.28 crore in Indian shares so far in 2017.
All sectoral indices eroded in value in the week. The BSE oil & gas index and BSE energy index deteriorated the most, falling 18.25% and 16.46% respectively.
Twenty-five of 30 Sensex stocks closed lower in the week. Oil & Natural Gas Corp. Ltd. and Reliance Industries Ltd fell the most. They dropped 17.09% and 16.56% respectively.
“More pain is likely to continue, as risk-reward ratio is not favourable,” said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd.
“Market is cheaper vs very expensive levels. So, we cannot call it cheap. It is not yet time to buy,” added Chhaochharia.
Shayan Ghosh has contributed to this story.