Closing Bell: Sensex plunges 792 pts, rupee hits 74/$ as RBI holds rates; Infosys, TCS up

Rushabh Maru - Research Analyst , Anand Rathi Shares and Stock Brokers told Moneycontrol:

The rupee has extended losses today as the RBI monetary policy meeting has clearly disappointed the street. Market was expecting at least 25 bps repo rate hike and measures to stabilize the rupee. But the status quo in the policy has disappointed. Given the sell-off in the domestic equities and higher crude oil prices, the rupee is now expected to move towards 75-76 levels in next couple of sessions.

Recent set of economic data clearly point towards strength in the US economy. As a result, the Federal Reserve is expected to continue on the path of aggressive interest rate hike in coming months. Overall, the situation is quite worrisome for the rupee.

An evening walk down Dalal Street | Black Friday! RBI rate pause spooks stocks, rupee; Sensex cracks 792 pts

Nearly Rs 4 lakh crore worth of investors' wealth eroded in today's fall, taking total weekly loss to over Rs 8 lakh crore. For the week, the Sensex lost 5 percent and the Nifty 6 percent.... Read More

Nagaraj Shetti,Technical Research Analyst, HDFC securities said the underlying trend of Nifty is sharply down, still there is no indication of any lower levels recovery in the market. "The overall negative chart pattern is hinting at a possibility of further weakness for the next couple of weeks, before showing any meaningful upside bounce from the lows."

He said the crucial lower levels to be watched is at 9,950-9,875, which are 38.2 percentfibonacci retracement of larger leg and previous important swing lows-green and grey lines). This levels could be achieved in the next 2 weeks, he feels.

Nagaraj Shetti,Technical Research Analyst, HDFC securities said the underlying trend of Nifty is sharply down, still there is no indication of any lower levels recovery in the market. "The overall negative chart pattern is hinting at a possibility of further weakness for the next couple of weeks, before showing any meaningful upside bounce from the lows."

He said the crucial lower levels to be watched is at 9,950-9,875, which are 38.2 percentfibonacci retracement of larger leg and previous important swing lows-green and grey lines). This levels could be achieved in the next 2 weeks, he feels.

The Indian rupee hit 74 against the US dollar for the first time after the RBI move, but it recovered from its record low of 74.22 in the late trade. The currency closed at 73.76 a dollar, down 18 paise.

"Rupee was caught off guard and weakened beyond 74, after RBI surprised markets by keeping rates unchanged. Given the rising oil and trade tensions, traders will bet on exports going up, to curb further weakening in the currency," Anand James, Chief Market Strategist at Geojit Financial Services told Moneycontrol.

Gaurang Somaiya, Currency Analyst, MOFSL expect that the USDINR pair now faces resistance at 75.30 and on the downside support is at 73.40-72.90.

The MPC’s decision to stand pat is a clear signal that inflation remains the anchor of monetary policy. Interest rates will not be used to manage the currency, but the MPC will respond to the inflationary consequences of depreciation.

Currently, although higher oil prices and a weaker currency add to near-term cost pressures, the RBI acknowledged the expected inflation undershoot on lower food inflation and tighter financial conditions. The pause also gives it a chance to wait and observe the impact of the hikes already delivered. Lastly, the change in its stance indicates the MPC remains ready to hike, if inflation pressures become more adverse.

Overall, given our view of an impending growth slowdown due to a significant tightening of financial conditions, 50bp in cumulative hikes already in place and the need for RBI to allow lagged effects of policy transmission to become apparent, we expect rates to remain unchanged over our forecast horizon.

"The RBI had hiked the policy rates by 50 bps in the previous two policy reviews. Despite global and domestic macro-economic headwinds of rising interest rates in the US, rising crude prices, threat of crude oil fuelled inflation, weaker currency and FII outflows, RBI has paused rate hikes for now. While we are in a rising interest rate cycle now, the pause will provide a temporary relief to the home buyer sentiment and support the festive season demand."

Bears took complete control of DalalStreet on Friday as more than Rs 4 lakh crore worth of wealth eroded in single day.

The 30-share BSE Sensex was down 792.17 points or 2.25 percent to close at 34,376.99and the 50-share NSE Nifty fell 282.80 points or 2.67 percent to10,316.50.

About three shares declined for every share rising on the BSE.

Final capitulation started in index heavyweights suggested that it is a brutal fall. Reliance Industries fell over 6percent. Bajaj Finance, IndiabullsHousing Finance and DHFLwere down over 9 percent.

Maruti Suzuki, HDFC, Yes Bank and ICICI Bank crashed while TCS and Infosysbucked the trend on rupee fall.

"RBI maintaining the rates in its monetary policy while may be surprising for the broader market however RBI has stuck to the principal of targeting inflation as core framework of the monetary policy. While the currency market and equity market have reacted negatively – this intermediary halt should help sooth the market once the immediate reaction on the mismatch on expectation is over.

RBI stand is well thought through and considered given where the broader economic and liquidity challenges are in the current market."

HPCL, ONGC, HPCL and IOC crashed 14-24 percent. Reliance Industries, IOC, HDFC, Bajaj Finance, ITC, ICICI Bank, SBI, Bajaj Finserv and Maruti were down 4-8 percent.

Rajiv Sabharwal, Managing Director & CEO, Tata Capital said the performance of INR against the USD in the medium term will impact various macro-economic indices.

The regulator will continue to monitor domestic liquidity, he feels.

"This rate pause will however be temporary and we could see a rate hike in the near future. The NBFC/ HFC sector will continue to take prudent measures in building its asset book," he said.

European stocks were lower, as investors awaited a key jobs report after benchmark USTreasury yields surged to afresh seven-year high.

France's CAC and Britain's FTSE were down 0.6 percent each while Germany's DAX was down 0.8 percent.

Market focus is largely attuned to a sell-off in USbond yields, after robust economic data exacerbated concerns about inflation and the risk of faster-than-expected interest rate hikes.

The yield on the benchmark 10-year note surged to a seven-year high of 3.232 percent overnight, following strong data released in the previous session. It comes ahead of September's payrolls report, scheduled for release on Friday, with investors set toscour the report for signs of wage growth. Source:CNBC

Abheek Barua, Chief Economist, HDFC Bank said this is a risky move by the RBI since the market was positioned for a rate hike, purely as a rupee defence.

In its absence currency and asset markets could see sharper corrections, he feels.

A narrow focus on inflation targets perhaps not desirable in the middle of a financial crisis, he said, adding change in stance suggests that the rate hike could still come in the coming months.