Stocks slide further, rupee breaches 74
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 financial 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 May 23. 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 April 4.
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 February 14, 2016.
“In my view, at least a 25 basispoint rate hike was required. That would have helped to stem the currency fall to some extent. Their comments on the NBFCS 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. “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 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.