Mumbai: India stocks closed their worst-performing week since May after the Reserve Bank of India cut its key policy rate by 25 basis points, in line with expectations, and reduced its estimate for economic growth for the current fiscal year.
The S&P BSE Sensex fell 1.1% at the 3:30 p.m. close in Mumbai. The NSE Nifty 50 Index was down 1.2%. Twenty eight out of 39 economists in a Bloomberg survey had predicted the cut by the central bank.
The easing of monetary policy adds to government efforts last month to revive economic growth with corporate tax cuts. Sentiment has been tempered, however, by a renewed crisis in India’s financial sector, a year after the collapse of major infrastructure lender IL&FS.
Strategist Views
- “Given the large revision in growth outlook, the 25-bps reduction seems inadequate,”’ Kotak Institutional Equities said in a note. “A 40-50 bps would have been commensurate along with a dovish guidance.”
- “A 25-basis point cut was already discounted in the market, so investors are unlikely to react strongly,” said Anita Gandhi, a director Arihant Capital Markets Ltd. “But in the long term it should help with interest costs and generating demand in the economy.”
- “Recently announced corporate tax cuts along with lower interest rates should aid in private capex revival going forward,” said Mihir Vora, chief investment officer at Max Life Insurance. “With more banks and housing finance companies pegging lending rates with policy rates, and the fact that liquidity in the system is now in surplus, transmission of the cumulative 135 basis points rate cuts over the past 11 months should happen faster.”
The Numbers
- Seventeen of 19 sector sub-indexes compiled by BSE Ltd. declined led by a gauge of banks
- HDFC Bank Ltd. contributed the most to the Sensex decline, decreasing 2.8%; Kotak Mahindra Ltd. had the largest drop, falling 3.3%; Oil & Natural Gas Corp. was the best performer, rising 1%- Bloomberg
Also read: RBI says monetary policy easing will continue as ‘long as necessary’ to revive growth