Lack of any major step for NBFC crisis pulls Sensex 550 pts lower

Sensex cracked more than 500 points giving up 40,000 and Nifty tanked more than 170 points to post their worst fall of 2019 after the RBI’s Monetary Policy Committee slashed repo rate by 25 bps.

The final tally on D-Street – Sensex plunged 553 points to 39,529 while the Nifty50 closed 177 points lower at 11,843.

Investors lost more than Rs 2 lakh crore in terms of market capitalisation in a single trading session. The average market capitalisation of the BSE-listed companies fell from Rs 155.41 lakh crore recorded on June 4 to Rs 153.20 lakh crore on June 6.

In terms of sectors, the biggest decline was seen in the rate sensitive sectors. Financials contributed almost 50 percent to the Nifty fall. Nifty Bank closed with losses of 731 points to post its biggest 1-day fall in 16 months.

Rate-sensitive stocks got hit the worst as traders preferred to book profits after massive run-up seen post-Lok Sabha election results on May 23 as most of the measures were priced in by D-Street, and no major step was taken to mitigate problems around NBFCs.

“Markets experienced one of the worst one day falls on June 6 with Bank Nifty down over 700 points and Nifty down 177 points. Over 50 percent of the wealth created post the election results was eroded and the indices came back to 11,844, which was a previous strong resistance,” Umesh Mehta, Head of Research, Samco Securities told .

“As the 25bps cut was in line with expectations and had already been factored, the Street didn’t cheer the move and continued to slide down with higher momentum. This is the third consecutive time that RBI has cut rates by 25bps which shows that they are indeed taking care of the slowing growth and as expected are being supportive by loosening their purse,” he said.

The Indian economy has been experiencing a slowdown with unemployment at 45-year highs and CPI inflation excluding food and fuel down to 4.5 percent in April from 5.1 percent in March. This reflected in the revision of the GDP growth rate forecast by the RBI for FY20.

Financial space has been battered a lot as despite yields softening, as there is little in the policy to overcome recent slippage fears. Liquidity is more important at this stage than the cost of funds.

The Nifty Financial Services index lost 2 percent weighed down by losses in Shriram Transport (down 8.5 percent), Indiabulls Housing Finance (down 7.6 percent), Edelweiss Financial Services (down 7.5 percent) and Indiabulls Ventures (down 4.6 percent).

Stocks in news:

DHFL slipped to the lowest levels in 5-years after rating agencies downgraded the stock. DHFL missing NVD payment triggered to a fall in NBFCs, as well as housing finance companies. The stock closed nearly 16 percent down.

GAIL India ended close to 12 percent lower on June 6 after media reports stated that the Petroleum and Natural Gas Regulatory Board of India had hiked lower than expected tariff for the company’s Hazira-Vijaipur-Jagdishpur pipeline on June 4. Further, the dismal hike forced brokerage firm CLSA to downgrade its rating on the stock to “underperform” from “buy” earlier and slash its target price to Rs 365 from Rs 420 earlier.

Tata Motors closed 2 percent lower on June 6 after Jaguar Land Rover reported weak UK sales in May. The UK-based luxury car maker sold 8,978 units in May 2019, lower by 6.8 percent compared to 9,635 units sold in the same month last year dragged by both segments.

Marksans Pharma shares rallied 5 percent to close at Rs 22.95 on June 6 after receiving Establishment Inspection Report for Goa facility. Company’s Goa facility inspected by the US Food and Drug Administration from February 25 to March 6, 2019.

Global update:

European stocks traded higher in the morning, as investors geared up for the latest decision from the European Central Bank. The pan-European Stoxx 600 ticked 0.6 percent higher after the opening bell.

The Asia Pacific market ended mixed as markets in the Greater China region struggled for gains. Nikkei erased earlier gains to finish near flat at 20,774.04 while the Topix index declined 0.34 percent to 1,524.91. Australia’s ASX 200 rose 0.39 percent to 6,383 as most sectors were up.

Shanghai Composite fell 1.17 percent to 2,827.80 and the Shenzhen composite was down 2.08 percent at 1,463.70. Taiwan’s Taiex fell 0.5 percent to 10,409.20 while Hang Seng index was fractionally higher.