Bank stocks, RBI's GDP outlook drag Sensex 260 points down

BSE Finance index was the biggest sectoral loser with a 3 per cent decline.

Reuters
Futures on the S&P 500 Index decreased 0.4 per cent as of 10:17 am London time, while the Stoxx Europe 600 Index declined 0.7 per cent.
MUMBAI: Banking and financial stocks came under significant pressure on Friday after the Reserve Bank of India (RBI) extended the loan moratorium by three months, resulting in a fall in benchmark indices as banking constitutes nearly 40 per cent of the total weight in both Sensex and Nifty.

RBI Governor's comments of a likely negative GDP growth in FY21 and weak global cues also weighed on sentiment, however, some buying in IT and auto stocks helped trim losses towards fag-end of the trading session.

The RBI in a surprise move cut repo rate by 40 bps to 4 per cent, a level last seen in 2000 earlier today.


"The repo rate cut by the MPC is in line with the recent economic data warranted for an immediate cut, but the extended moratorium of 3 months pose some risks in the possibility of rising NPA’s which has dragged the market's momentum and banking stocks to trade at day’s low,” said Vikas Jain, Senior Research Analyst, Reliance Securities.

BSE Finance index was the biggest sectoral loser with a 3 per cent decline, followed by BSE Bankex which dropped 2.44 per cent.

Sensex shed 260 points after trading in the green in early trade. Mortgage lender Housing Development Finance Corporation (HDFC) contributed the most to Sensex’s decline and was down nearly 5 per cent. Private lenders HDFC Bank and ICICI Bank dropped 2.43 per cent and 4.32 per cent, respectively.
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“Nifty is holding the support levels of 8,950 on the downside and we expect the markets to be volatile next week with extended weekend and rollover movement in individual sectors and stocks with respect to the derivatives expiry,” Jain added.

Key highlights
  • The 30-share Sensex shed 0.84 per cent or 260.31 points to close at 30,673, while the 50-share Nifty dropped 0.74 per cent or 67 points to close at 9,039.
  • In the 30-pack Sensex, only 12 stocks ended in the green with Mahindra & Mahindra as the top gainer, up 4.46 per cent. It was followed by Infosys and paints maker Asian Paints.
  • Oil-to-telecom conglomerate Reliance Industries erased early gains and closed 0.59 per cent lower even as it said private equity firm KKR will invest Rs 11,367 crore into Jio Platforms for a 2.32 per cent stake. HDFC twins, ICICI Bank and Axis Bank were the top drags on Sensex.
  • Market breadth was also negative with declining shares outpacing advancing ones in the ratio of 1.4:1 on the BSE.
  • The fall was less severe for the broader market with BSE 500 index declining 0.68 per cent. BSE mid and small-cap indices dropped 0.83 per cent and 0.23 per cent, respectively.
  • Among financial stocks, M&M Financial Services and Equitas Holdings dropped 6.31 per cent and 6.29 per cent, respectively. Private lenders Axis Bank and Federal Bank were top losers in the banking index, declining 5.65 per cent and 5.08 per cent, respectively.
  • BSE IT index was the top sectoral gainer as it advanced 1.68 per cent. D-Link India and Datamatics advanced 6.89 per cent and 5 per cent respectively.
  • Foreign institutional investors (FIIs) have bought a net of Rs 7,072.75 crore of Indian shares so far in May, while domestic institutional investors propped up net of Rs 6,275.15 crore of the asset class in the same period.

Key factors influencing the market

  • RBI action
RBI’s decision to insist on a full repayment by March 2021 and absence of a loan-restructuring scheme for the troubled financial services sector overshadowed the rate cut announcement, and pushed all the financial stocks in the red.

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The MPC lowered the repo rate by 40 basis points (bps) to 4 per cent as it met during May 20-22 in an unscheduled meeting. RBI Governor Das said the central bank will maintain an accommodative stance till growth revives.

  • Weak global markets
Global stocks slipped and US equity futures retreated on Friday as investors braced for tensions between Washington and Beijing to escalate after China announced plans to impose a national security law in Hong Kong, Bloomberg reported.

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Futures on the S&P 500 Index decreased 0.4 per cent as of 10:17 am London time, while the Stoxx Europe 600 Index declined 0.7 per cent. The MSCI Asia Pacific Index sank 1.9 per cent.

  • Fast-spreading Covid-19 infections
The COVID-19 cases in India grew by a record 6,088 cases in the last 24 hours to 118,447. The death toll from the virus touched 3,583.

What to watch out for?

  • The rise and spread of coronavirus infections in the country will be closely watched in light of some relaxations in the lockdown such as restarting of domestic flights.
  • Investors will also watch out for further relaxations in the lockdown that has been extended up to May 31.
  • March quarter GDP data due next week will be a key economic indicator of the early impact of the lockdown.
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