A 35 bps rate cut fails to lift sentiment

The Reserve Bank of India (RBI) went for an unconventional 35 bps rate cut on August 7 but failed to impress the market. The S&P BSE Sensex saw a drop of nearly 300 points, while the Nifty50 fell by nearly 100 points after starting on a positive note.

The central bank’s monetary policy committee (MPC) cut the rates fourth time in row to boost liquidity in non-banking financial companies and kick start investment cycle in the economy that is showing signs of a slowdown.

The RBI policy stance is clearly pro-growth. The measures taken to increase flows to NBFCs are credit positive and will enhance lending, suggest experts but concerns over the health of the economy and the extent of further rate cut dented sentiment.

“The RBI monetary policy committee’s decision of an unconventional 35 bps rate cut speaks about its intent of cutting rates more than the usual 25bps but less than the 50 bps, which is termed as excessive. This, however, induces some uncertainty in market expectations on the quantum of rate changes expected henceforth,” Dhiraj Relli, MD and CEO, HDFC Securities, told .

The overall tone of the monetary policy was dovish with slowing growth—both on the global and domestic front – being a major concern, Relli said. Cyclical slowdown in growth, as the RBI governor mentioned, has been the primary driving factor for rate cuts, he said.

Rate-sensitive stocks pared gains and turned negative towards the close of the trade. The S&P BSE Auto index fell 2.1 percent, followed by the S&P BSE Bankex which was down by over 1 percent. The Consumer Discretionary index was down 0.8 percent even as pharma and IT bucked the trend.

Indiabulls Housing Finance was the top Nifty loser, down 13 percent, followed by M&M, which fell 5.6 percent post Q1 results. Tata Steel closed 4.9 percent down.

Stocks in news

Share price of JSW Energy rose 3 percent after the company posted a strong set of numbers for the June quarter.

Cox & Kings are locked at 5 percent lower circuit after the company defaulted on Rs 5 crore payments on unsecured commercial paper due on August 6.

Shares of D-Mart operator Avenue Supermarts slipped nearly 4 percent on reports of promoter cutting their stake in the company.

Mahindra and Mahindra reported adjusted net profit at Rs 892.7 crore for the June quarter, a 29 percent year-on-year drop due to weak demand across segments. The stock fell over 5 percent.

Shares of Titan Company fell below Rs 1,000-mark intraday and hit a fresh six-month low, as global brokerages slashed price target on demand worries after Q1 earnings. The stock recouped losses and closed 0.8 percent lower.

Global updates

European shares rose after three days of falls, as deal-making activity in the German chemical sector helped offset losses from London-listed mining majors, said Reuters.

Asian markets ended mixed amid trade dispute between the US and China. Shanghai Composite fell 0.32% at 2,768.68, Nikkei shed 0.33% at 20,516.56 and Kospi slipped 0.41% at 1,909.71.

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