Shocked, disappointed and then hopeful was how market sentiment swung on Monday following the RBI policy. Within fifteen minutes of the RBI announcement to leave key policy rates unchanged, the markets tumbled and moved from green to red territory with a vertical fall.
The NSE Nifty in those fifteen minutes lost close to 100 points, while the BSE Sensex fell by about 300. The Nifty ended the day down 75 points (1.5 per cent) at 5,064.25 and the Sensex ended down 244 points at 16,705.
“It was a big shock for the market. Most had expected at least a 25 basis points cut in interest rates. But the fact that no action was taken was disappointing,” said Mr Chokkalingam G, Executive Director & Chief Investment Officer, Centrum Wealth Management.
Jolt to players
However, markets had already split in their view last week post the announcement of the industry data and inflation numbers. As industrial numbers grew 0.1 per cent, markets rejoiced hoping to see RBI action on rate cuts, while inflation at 7.55 per cent changed their mindset about RBI action. But, analysts say, most industry players expected the RBI to give in to a rate cut of 25 basis points for promoting growth in the economy.
“Given the poor growth outlook and tightness in the money markets, this move, or absence thereof, comes as a negative surprise to the markets. While we understand the need to eliminating supply side bottlenecks, RBI’s emphasis should be skewed towards growth,” said Mr Tarun Kataria, CEO- India, Religare Capital Markets Limited.
The RBI’s policy, however, found some supporters in the market. “CPI and food inflation has gone up again and hence at the onset of monsoon, it was prudent to see how the monsoon pans out before taking a rate decision. Food inflation remains sticky and though core inflation is well below five per cent, the RBI could not have overlooked the emerging threat of food inflation feeding through to generalised inflation,” said Mr Arvind Chari, Fund Manager (Debt), Quantum Asset Management Company.
Market players have for now found solace in the hope that the RBI will look at cutting rates in the next policy review. They are confident that the RBI will continue with measures to increase liquidity in the system, but will wait and watch before taking any rate-cut decisions.
“The sense we get from the RBI is that they want to watch for action from the government on the fiscal policy front. They need more evidence of fiscal consolidation,” said Mr Hemant Kanawala, Head — Equities, Kotak Mahindra Life Insurance.