Sensex tanks 660 points as RBI cautious on economic recovery

Equity benchmarks nosedived on Tuesday after the Reserve Bank of India (RBI) took a cautious stance on the economic recovery even as it cut the policy rates by 25 basis points. Adding to the pessimism, the Indian Meteorological Department (IMD) downgraded its forecast for monsoon to 'deficient', raising doubts on whether the central bank could follow Tuesday's rate cut with another one this year.

In the second bi-monthly monetary policy, the central bank left the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) unchanged.

RBI Governor Raghuram Rajan lowered projections of the economic growth as measured by GVA (gross value added) to 7.6 per cent from 7.8 per cent estimated in April due to global factors and likely impact of below normal monsoon.

Selling pressure was witnessed across the board but rate-sensitive sectors fell the most. In the end, the BSE Sensex and NSE Nifty plunged 660 points and 197 points to 27,188 and 8,236, respectively.

The BSE Realty index, BSE Bankex, BSE Auto tanked 3.83 per cent, 3.46 per cent and 2.08 per cent, respectively. Other sectoral indices on the Bombay Stock Exchange also closed in red.

"The markets initially got positive cue from the move by RBI but subsequently corrected owing to the apex bank's concerns over the inflation trajectory in the near future. RBI expects the inflation to tick higher from here owing to higher oil prices, below normal monsoon, and fall in crop output. The rise in input costs may further impact the profitability of the already ailing India Inc and would thus affect their upcoming quarterly results as well," Hiren Dhakan, associate fund manager, Bonanza Portfolio, said.

Among the Nifty stocks, Axis Bank slid the most 4.44 per cent to Rs 552.75, followed by IndusInd Bank (down 4.32 per cent to Rs 844.85), State Bank of India (down 4.21 per cent to Rs 266.50), Asian Paints (down 4.20 per cent to Rs 756.60) and ITC (down 4.08 per cent to Rs 318.50) and stood among the list of top losers.

Zee Entertainment (up 2.58 per cent to Rs 325.50), Lupin (up 0.69 per cent to Rs 1,804.50) and Bharti Airtel (up 0.22 per cent to Rs 417.50) beat the trend to end as the only gainers in the 50-share Nifty index.

Overall market breadth for the day remained negative as advances to declines ratio for Nifty remained at 3:47.
 
"RBI has highlighted factors including low capacity utilisation, subdued investment and credit growth, and uneven economic recovery to reduce the policy rate. RBI has also highlighted the concerns on account of below average monsoon which may result into lower food output and thereby leading to pick up in retail food inflation," said Rahul Goswami, CIO, fixed income, ICICI Prudential AMC.

European markets, too, remained weak on Tuesday amid uncertainty over high-level meeting on Greece's debt crisis in order to strike a deal to prevent the government from defaulting and potentially exiting the Euro zone. Asian peer markets Nikkei 225, Hang Seng and Singapore were all down by 0.13 per cent, 0.47 per cent and 1.51 per cent, respectively, on Tuesday.