Sensex Down 434 Points After RBI Cuts Growth Forecast

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Sensex Down 434 Points After RBI Cuts Growth Forecast
Himali Patel - 04 October 2019

Mumbai, October 4: The RBI’s Monetary Policy Committee (MPC) reduced repo rate by 25 bps (basis points) to 5.15 per cent, bringing the total reduction to 135 bps in 2019, which was in line with most of the market expert expectations. However, the market reactions were disappointing as the BSE Sensex plummeted 433.56 points closing at 37,673.31. The broader NSE Nifty 50 Index crashed 139.25 points and closed at 11,174.75. “The rate cut of 25 bps by the RBI has not enthused the market because it was building in a higher reduction. The RBI has also cut its GDP forecast for the year significantly, by 800 bps to 6.1 per cent. While the stance maintained by the RBI is mindful of the structural slowdown in the economy, the market feels a greater push was needed,” said Naveen Kulkarni, Head of Research, Reliance Securities.

The 30-share BSE index which saw a high of 770 points during the intraday soon turned soured post the announcement by RBI thereby crashing by 434 points. The index hit a high of 38,403.54 and low of 37,633.36. The indices that were in the red included banking, realty and auto.MPC cited that various factors like global malaise, trade wars coupled with sharp reduction in India GDP growth rate and benign oil prices continues to remain weak. “The real GDP growth for 2019-20 in the August policy was projected at 6.9 per cent – in the range of 5.8-6.6 per cent for H1:2019-20 and 7.3-7.5 per cent for H2 – with risks somewhat tilted to the downside. GDP growth for Q1:2020-21 was projected at 7.4 per cent. GDP growth for Q1:2019-20 was significantly lower than projected. Various high frequency indicators suggest that domestic demand conditions have remained weak,” said the RBI’s policy document.

That said, on the backdrop of the given condition, the RBI has revised downwards the real GDP growth for 2019-20 from 6.9 per cent in the August policy to 6.1 per cent – 5.3 per cent for second quarter 2019-20. “RBI continues to expect growth revival in the second half of FY20, growth rates have been reduced for both FY20 and Q1FY21. In line with these, RBI maintains an expansionary stance on the liquidity side also. We now expect that rather than 5 per cent, the repo rate in this cycle would bottom out at 4.5 per cent. RBI’s stance coupled with recent government measures bode well for the equity market,” said Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers.

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