Sensex Trades 300 Points Lower; Axis Bank & Bajaj Finance Top Losers

Fri, 22 May 12:30 pm

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Share markets in India are presently trading on a volatile note. Benchmark indices edged lower today even after the Reserve Bank of India (RBI) slashed repo rate by 40 bps to 4%.

Selling pressure is seen as RBI Governor Shaktikanta Das said the GDP growth in FY21 is expected to be in negative territory.

Barring IT stocks, all sectoral indices are trading on a negative note with stocks in the finance sector, metal sector and banking sector witnessing most of the selling pressure.

The BSE Sensex is trading down by 301 points (down 1%), while the NSE Nifty is trading down by 85 points (down 1%).

The BSE Mid Cap index is trading down by 0.6% and the BSE Small Cap index is trading down by 0.2%.

Gold prices are trading up by 0.8% at Rs 46,761 per 10 grams.

The rupee is trading at 75.77 against the US$.

Market participants are tracking Bosch share price, UPL share price, and JSW Steel share price as these companies are scheduled to announce their March quarter results (Q4FY20) later today.

You can read our recently released Q4FY20 results of other companies here: Ultratech Cement, Bajaj Auto, L&T Infotech, Nesco, Sanofi India, Apollo Tyres, Ajanta Pharma, Grindwell Norton, Jubilant Foodworks.

In news from the banking sector, shares of Bandhan Bank slipped over 6% today after the private lender said its services have been impacted in some areas of West Bengal and Odisha due to cyclone Amphan and the cyclone is likely to impact business worth Rs 2.6 billion.

In a regulatory filing, the bank said, "as per the initial assessment, in our areas of operations, 49 banking units (micro banking outlet) in five districts were impacted of which 45 are operational today."

The bank further said, it could continue operations in all but five branches in the affected districts. Where the outlets could not continue services, it was due to issues in accessibility.

As per estimate, the business of around 65,000 of its micro banking borrowers, amounting to an exposure of approximately Rs 2.6 billion could be impacted due to the cyclone.

Bandhan Bank share price is presently trading down by 5.5%.

Moving on to news from the macroeconomic space, in a new set of measures to trim the impact of coronavirus on the economy, the Reserve Bank of India (RBI) today decided to cut the repo rate by 40 basis points (bps) from 4.4% to 4%.

The reverse repo rate has been reduced to 3.35%.

RBI Governor Shaktikanta Das said that RBI's Monetary Policy Committee (MPC) met again from May 20-22. MPC voted to 5:1 majority to reduce the policy repo rate by 40 basis points.

The RBI also extended the moratorium on payment of loans by another three months till August to provide much-needed relief to borrowers.

Earlier in March, the apex bank had allowed a three-month moratorium on payment of all term loans due between March 1, 2020, and May 31, 2020.

As a result of this moratorium, individuals' EMI repayments of loans taken were not deducted from their bank accounts. The EMI payments will restart only once the moratorium time period expires on August 31.

Here are some key takeaways from RBI's press conference:

RBI governor Shaktikanta Das said that the private consumption, which comprises 60% of the GDP, has taken the biggest hit. Both the demand compression and supply disruption has taken a toll on the economy.

On economic growth in the current fiscal, the RBI projected negative growth with a pickup in growth impulses in second half.

The special refinancing facility of Rs 150 billion to SIDBI at repo rate for 90 days for lending & refinance operations has been further rolled over for another 90 days at the end of initial 90 days period.

The RBI said it will extend Rs 150 billion line of credit to EXIM Banker.

The RBI increased export credit period to 15 months from 1 year.

The governor said inflation outlook is highly uncertain due to the outbreak of the COVID-19 pandemic and expressed concern over elevated prices of pulses. He also said there is a need to review import duties to moderate prices.

He said that headline inflation may remain firm in the first half of the year and may ease in second half. He added that inflation may fall below 4% in the third or fourth quarter of the current fiscal.

Note that in March, the RBI governor had announced several measures to ease liquidity pressure in the banking system and to boost the economy from the coronavirus shock, including a sharp 75 basis points rate cut in March.

With the RBI cutting interest rates, the focus of market participants has now shifted to whether the RBI's decision will translate into better economic activity in the near term.

Note that RBI rate cuts have always had a big gap with bank lending rates. This is evident in the chart below:

Yet Another RBI Rate Cut May Not Result in Lower Lending Rates

Here's what Tanushree Banerjee wrote about it in one of the editions of The 5 Minute WrapUp...

• It will be a while before lower lending rates stoke the economy.
  
  Therefore, hoping for an immediate revival in the economy is futile. The RBI has no magic wand to do this.
  
  Rather look for stocks that can outperform irrespective of the RBI policy.
  
  I believe the cement sector may be a good place to start.
  
  One of my recent recommendations from the sector is a typical Rebirth of India stock.
  
  And I won't be surprised if it repeats its 2002-2006 performance.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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