New Delhi: Stock markets went into free-fall on Friday as investors dumped Indian shares after the Reserve Bank of India (RBI) left the repo rate unchanged.
The market was expecting a 0.25-0.50% hike in the key policy rate and was left surprised by the RBI’s pause. Sensex plunged 792 points, losing 2.25% of its value at the close of today’s trading. Nifty closed 2.67% lower.
The rupee too breached the 74 mark against the US dollar. The domestic currency hit the all-time low of 74.22 against the greenback before ending the day at 73.85, 18 paise lower than yesterday’s closing price.
Movement in Nifty, Sensex between Sep 21 and Oct 05, 2018
| Index | Sep 21 | October 05 | %change |
| Nifty50 | 11,143.10 | 10,316.45 | (-7.4) |
| Sensex | 36,841.60 | 34,376.99 | (-6.6) |
Source: NSE, BSE
Since September 21, Sensex has fallen by as much as 6.6% while Nifty has lost 7.4% of its value. Stock markets suffered their biggest weekly losses in two years.
In today’s trading at the NSE, state-owned oil marketing companies were the biggest losers.
HPCL’s stock price tanked 25.18% while BPCL’s share value fell 21.11%.IOC’s share closed 16.19% lower.
HPCL, BPCL and IOC had also fallen 18.24-22.44% on Thursday after finance minister Arun Jaitley said state-owned-oil marketing companies will absorb Re 1 per litre on retail sale of petrol and diesel.
Brokerage firms have downgraded OMCs after yesterday’s announcement.
ONGC, RIL, HDFC, Bajaj Finance, ITC, ICICI Bank, SBI, Bajaj Finserv and Maruti were the other major losers of the day.
Rising crude prices have fuelled concerns about the Modi government’s ability to finance current account deficit (CAD), triggering flight of foreign capital. That has in turn put pressure on the rupee.
RBI governor Urjit Patel-led Monetary Policy Committee kept the repo rate unchanged at 6.5% but changed the policy stance from ‘neutral’ to ‘calibrated tightening’.
The MPC’s decision to stand pat is a clear signal that inflation remains the anchor of monetary policy, said global financial services firm Nomura.
Nomura added that interest rates will not be used to manage the currency, but the MPC will respond to the inflationary consequences of depreciation.
“With a shift of stance from neutral to ‘calibrated tightening’ , we believe that RBI is likely to re-commence rate hiking from the forthcoming policy in December,” said Shubhada Rao, group president and chief economist, YES bank.
Also read: In Surprise Move, RBI Leaves Interest Rates Unchanged; Rupee Slips Below 74-Mark
India Ratings and Research, a credit rating agency, too has forecast one more hike this fiscal.
“One more rate hike this fiscal is a possibility and cannot be ruled out. This is also reflected in the policy stance changing from the neutral to calibrated tightening,” said Sunil Sinha, principal economist, India Ratings and Research.
The MPC has hiked repo rate by 0.5% this year.
The MPC noted that global headwinds in the form of escalating trade tensions, volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation outlook.
“The lingering concerns seem to be around crude oil prices, global interest rates and the ongoing global developments on the trade front,” said Lakshmi Iyer, CIO (Debt) & Head of Products, Kotak Mahindra Asset Management Company.
The RBI retained growth forecast for 2018-19 at 7.4% but snipped project growth for the first quarter of the next fiscal by 0.1%.
“GDP growth for Q1FY20 is now projected marginally lower at 7.4% as against 7.5% in the August resolution, mainly due to the strong base effect, it added.