Stocks fall as RBI’s words of caution spook investors
Governor Shaktikanta Das said risks to growth are acute
MUMBAI:The Indian stock market fell after the Reserve Bank of India’s (RBI) surprise monetary policy review on Friday, with investors wary after central bank governor Shaktikanta Das highlighted the macroeconomic impact of the covid-19 outbreak, adding that “risks to growth were acute”. Weakness in global markets also weighed on sentiment. The BSE Sensex ended at 30,672.59, down 260.31 points, or 0.84%. The Nifty closed at 9,039.25, down 67 points, or 0.74%.
The central bank’s decision to refrain from estimating GDP growth is a reflection of the complexity and the limitations of the present growth models, said analysts. However, a key takeaway was that banking sector stress will continue, analysts said.
“The commentary of the governor’s speech underpins the low prospects of a V-shaped recovery. The commentary indicates that the stress in the economy is likely to continue. We also believe the government should provide subvention on existing loans or bear some cost of the haircut of existing loans. This will ensure that banks have confidence in lending to lower-rated entities or individuals,” said Abhimanyu Sofat, head, research, IIFL Securities.
There is also a growing worry that transmission of lower interest rates is unlikely to be over soon, as the overall financial condition remains compromised, with the economy grappling with supply-related issues.
Banking stocks were the worst hit on fears that RBI’s extension of loan moratorium by three months will burden the balance sheets of banks. Sovereign bonds saw a jump after the rate cuts. Yield on the most traded 2029 gilts dropped 7 basis points to 5.96% at close. The rupee lost 0.44% to end at 75.96 against the dollar.