India Sensex fluctuates as RBI delivers rate cut

By BLOOMBERG

MUMBAI • India’s benchmark equity index was whipsawed yesterday after the Reserve Bank of India (RBI) unexpectedly cut its key policy rate and dropped its hawkish stance, briefly firing up stocks.

The S&P BSE Sensex swung between a 0.5% gain and a drop of 0.2% soon after the decision, before rising to 0.4% as of 2pm in Mumbai yesterday. Automobile makers helped drive gains as the rate cut is likely to help revive demand for vehicle loans.

While stocks typically gain on a rate cut, analysts say expectations were already built in, which go some way in explaining the two-way movement.

The Sensex and the NSE Nifty 50 indexes have gained about 5% each since Shaktikanta Das was named the new governor of the central bank. A gauge of banking stocks has also risen 5% in the same period.

“Even as borrowing costs may go down a bit, concern on India’s fiscal deficit still remains an overhang on sentiment,” said Viral Berawala, CIO at Essel Finance Asset Management Ltd. “The positive seems to be for the short term.”

“Markets were already factoring (the rate cut), so not much of an excitement to be seen. But this is a good time for lowering rates as the focus is on increasing private investments,” said Sushant Kumar, fund manager for equity at Raay Global Investments Pte Ltd.

“Market had run up a lot prior to the event and many investors used the rally to book profits,” said Dharmesh Kant, head of research at Indianivesh Securities Ltd. “Rate cut of 25 basis points is an act of fine balance between maintaining real income and boosting economic growth.”

“The RBI decision addresses two immediate challenges. One, it is making liquidity available at a cheaper cost, especially to banks who are focused on higher loan growth via retails loans and asset purchase from non-bank finance companies,” said Sameer Kalra, president at Target Investing.

Fifteen of 19 industry subindexes compiled by BSE Ltd advanced as a gauge of telecom and auto companies paced gains. Bajaj Auto Ltd and Maruti Suzuki India Ltd gave the biggest boosts to the benchmark index.

Sun Pharmaceutical Industries Ltd was the best performer on Sensex. AstraZeneca Pharma India Ltd climbed as much as 16% after earnings. — Bloomberg