6 Reasons Why Sensex Plunged 1,307 Points Today

Wed, 4 May Closing

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After trading on a flat note in the first half, share markets in India came under pressure in the afternoon session and ended deep in the red.

Benchmark indices plunged today reacting to the unscheduled repo rate hike announcement made by the central bank at around 2 pm.

At the closing bell, the BSE Sensex plunged 1,307 points, ending 2.3% lower.

Meanwhile, the NSE Nifty plummeted 392 points, ending at 16,677.

Power Grid and NTPC were among the top gainers today.

Titan, Bajaj Twins, and IndusInd Bank were among the top losers today.

The SGX Nifty was trading 2.3% lower at the time of writing.

The broader markets witnessed a heavy sell-off as the BSE Mid Cap index ended 2.6% lower while the BSE Small Cap index dipped 2.1%.

All the sectoral indices ended in red with stocks in the FMCG, metal, bank, and auto sector witnessing most of the selling.

Shares of GHCL and Sumitomo Chemical India hit their 52-week high today.

Gold prices are currently trading down by 0.2% at Rs 50,690 per 10 grams while silver is also down at Rs 62,459 per kg.

The rupee is trading at 76.39 against the US$.

Here are six factors why markets plunged today:

Weak global cues: Asian share markets ended deep in the red today. European share markets also opened lower, which pressured Indian markets.

While Tokyo remained closed, the Hang Seng fell by 1.1%. The Shanghai markets also remained closed on accounts of Labor Day.

US Fed rate hike: A policy decision from US Fed is slated for later today where it is expected that the Fed will hike rates sharply. Any hike in interest rate sucks money out of the market.

RBI rate cut: The RBI Monetary Policy Committee held an unscheduled meeting from 2 May to 4 May and decided unanimously to increase the benchmark policy repo rate by 40 basis points to 4.40% from 4%. The stance of monetary policy remained accommodative while focusing on withdrawal of accommodation, RBI governor Shaktikanta Das said.

Effect of bond market: Following the rate hike, bond markets saw a heavy sell-off as yields on the 10-year benchmark government bonds jumped to 7.38%.

Sectoral check: All sectoral indices ended deep in the red. Banking stocks were the worst hit as the central bank said it will also hike the cash reserve ratio, which according to reports will such out Rs 870 bn liquidity from the system.

LIC IPO: India's biggest IPO opened for subscription today and saw a good response. It is expected that the issue will receive record applications and investors may sell their current holdings to bid for the IPO.

We will keep you updated on the latest developments from this space. Stay tuned.

Speaking of the current stock market scenario, amid the ongoing volatility, have a look at the two charts below, in the order they have been placed:

Near Term Volatility in Sensex Compensated by Long Term Gains

The year-on-year change in the Sensex was hardly predictable but someone who stayed invested multiplied every lakh nearly 14 times.

Timing the markets could be suicidal as valuations and volatility put the markets in a see-saw mode.

As an individual investor, you need to sit tight over high conviction stocks and invest consistently to see the magic of compounding.

Because 2022 could be extremely profitable, over time, provided you reset your portfolio with the right kind of safe assets and safe stocks.

Coming to the latest developments from the IPO space, LIC's mega IPO opened for subscription today.

The government is selling over 220 m shares at a price band of Rs 902-949 apiece in the initial public offering which will close on 9 May.

As of 3.30 pm today, the LIC issue was subscribed 50% led by policyholders who subscribed 1.68 times the portion allocated for them.

The employee portion also saw healthy demand and was subscribed 0.89 times.

The retail segment was soured by the RBI hike as it was only subscribed 0.52 times.

The non-institutional investor segment lagged in gaining attraction and was subscribed only 0.22 times while the qualified institution segment witnessed only 0.03x subscription.

The government has also extended the offer for the IPO where it will be open for bidding on Saturday, 7 May as well.

As per the final papers filed, the allotment of shares to the demat account of bidders will happen by 16 May, post which LIC would be listed on or about 17 May.

Speaking of the insurance sector, Chartist Brijesh Bhatia talks about the life insurance sector, in one of his videos for Fast Profits Daily.

Brijesh is bearish on the sector and in the below video, he explains why. Tune in to find out more:

Moving on, in an untimely statement, the Reserve Bank of India (RBI) Governor Shaktikanta Das announced a hike in repo rate by 40 basis points (bps) to 4.4% with immediate effect, citing persistent inflationary pressures in the economy.

For the third consecutive month headline inflation rode above the RBI's 2%-6% target range, reaching a 17-month high of 6.9% in March.

Increases in fuel and food prices, escalated by Russia's invasion of Ukraine and sustained pandemic-related supply chain disruptions, have run hotter than the RBI had expected for much of this year.

Cash Reserve Ratio (CRR) has also been raised by 50 bps to 4.5%, effective from 21 May.

The statement comes ahead of the Federal Reserve's rate decision which is to be announced later today and is expected to see the US central bank's most aggressive action to battle inflation in decades.

Though a rate hike was expected, the timing has been a surprise element.

How does this affect you?

Since the repo rate is the rate at which the banks borrow from the RBI, acquiring credit from the bank becomes expensive as they are forced to increase their lending rate.

Every month installments (EMIs) of a floating rate loan change with changes in market interest rates. If market rates increase, the repayment increases. When rates fall, the dues also fall.

The tightening monetary policy will also impact the overall demand as it would leave lesser money in the hands of people.

According to experts, this being the first of many rate hikes to follow, RBI would want to reach the pre-covid repo rate, which was 5.15%.

However, the speed at which the central bank increases the rates remains to be seen.

It remains to be seen how the above developments pan out.

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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