Sensex sinks 661 pts; monsoon, inflation woes undo rate cut

Moneycontrol Bureau

Indices plunged over 2 percent Tuesday as hawkish commentary from the RBI and a bleak monsoon forecast by the Meteorological Department rattled investors. The 30-share BSE Sensex fell 660.61 points to 27188.38 and the 50-share NSE Nifty plunged 196.95 points to 8236.45. Midcap and small cap shares too took a beating, falling more than 2 percent. 

Market experts feel developments in monsoon, inflation, June quarter earnings and crude oil will decide near term trend.

Vibhav Kapoor of IL&FS said the Nifty will continue to see resistance at the 8500 level. According to him, further earnings weakness in store and the Nifty will trade between 8000-9000 for a major part of this year.

The Reserve Bank of India acted on expected lines by cutting repo rate by 25 basis points and keeping cash reserve ratio and statutory liquidity ratio unchanged.

However, the central bank raised inflation forecast for January 2016 to 6 percent against 5.8 percent earlier, highlighting monsoon as the biggest uncertainty at this point.

"Going forward, room (for more rate cut) may absolutely open up if monsoon is better than expected or government action can mitigate any potential rise in food prices and if energy prices stay contained," Raghuram Rajan, RBI Governor said.

This shows that the RBI expects a gradual recovery, which would in part be dependent on how the monsoons pan out, said Anis Chakravarty, Senior Director, Deloitte in India.

The central bank has advised caution while outlining the three major risks to inflation in the form of sub-par monsoons, oil prices moving up and a volatile external environment that are likely to guide on the quantum of rate cuts in the future, he added.

There was bad news on the monsoon front as well. The Earth Sciences Minister Harsh Vardhan has revised monsoon forecast downwards to 88 percent from 93 percent of long period average in April. The north western region which includes Delhi, Haryana and Rajasthan will be affected, he said.

The rupee, too, weakened in tandem with the equity markets today. The currency slipped 17 paise to 63.88 on the back of dollar demand.

Banks saw the major selling pressure with the Bank Nifty falling 3.4 percent. State Bank of India, Axis Bank and ICICI Bank crashed 4 percent followed by HDFC Bank with 2.7 percent loss. Housing finance company HDFC lost 3.55 percent.

Cigarette major ITC was the biggest contributor to Sensex’s fall, down 4 percent after media reports indicated that Maharashtra government banned sale of loose cigarettes.

Two-wheeler maker Hero Motocorp tanked 3.8 percent after reporting a 5 percent fall in May sales.

Among others, Infosys, L&T, HUL, Sun Pharma, M&M, Cipla, Hindalco Bajaj Auto and Wipro were down 2-4 percent. However, Bharti Airtel bucked the trend, up 0.4 percent.

The market breadth was weak as about 811 shares advanced against 1875 shares declined on the Bombay Stock Exchange.