Market reaction: Sensex sheds 433 points as growth concerns mount

The Sensex on Friday lost over 433 points, after the Reserve Bank of India (RBI) sharply lowered GDP growth estimates for the current fiscal to 6.1% from 6.9%. The market believes the latest round of rate cuts may not be enough to revive demand. Investor wealth of Rs 1.42 lakh crore was wiped out on Friday, taking the five-day erosion to Rs 5.3 lakh crore. With Friday’s fall, the benchmark index has extended its fall for the fifth day and erased almost half the gains that it made since the corporate tax cut announcement. Sunil Sharma, chief investment officer, Sanctum Wealth Management, said the corporate tax cut will flow to corporate bottom lines, but will not necessarily revive the economy.

“The measures announced have been critical in supporting the markets and improving confidence, but consumption stimulus is critical, alongside monetary transmission,” Sharma said. Bank stocks bore the brunt of Friday’s sell-off on worries over anemic demand even after a sl-ew of steps to pull the economy out of a six-year low growth.

The Bank Nifty slumped 760.40 points in intra-day trade before settling at 27,731.85 points, down 682.25 points or 2.4%. The gauge for bank stocks has come off nearly 8% in the last five sessions and is just 3.6% away from its September 20 level.

While the Sensex slid 433.56 points, or 1.14%, to close the session at 37,673.31 points, the broader Nifty50 lost 139.25 points to settle at 11,174.75. Four banks — HDFC Bank, ICICI Bank, Kotak Mahindra Bank and Axis Bank — among them contributed about a third of Sensex’s fall on Friday.

After buying $954.65 million worth of shares in September, foreign portfolio investors (FPIs) resumed selling, and have pared domestic exposure to the tune of $469.4 million so far this month. On the flipside, domestic institutional investors bought shares worth $418.4 million during the same period.

The Nifty Mid Cap and Small Cap also lost over 5% in the last five sessions, taking their six-moth losses to 13.9% and 18.2% respectively. Motilal Oswal, managing director, Motilal Oswal Financial Services, said, “Today’s rate cut by 25 bps to 5.15% is a very good level of indicative rates. The issue is, transmission of these rates in the system. RBI has been asking banking system to offer loans at a level that reflects the benchmark cut, but the system is reluctant to pass on, due to risk aversion. It is a dichotomy that the one needs money does not get it and the one who is offered does not need it!”

“Equity markets are cautious and watchful about the earnings season which at this juncture looks less enthusiastic. There is a possibility that equity markets will trade cautious and range bound. In medium to long term, I see good investment opportunity in equities,” added Oswal.

The market breadth, indicating the overall health of the market, was tilted towards the losers over the last one-and-a-half years. On Friday, 1,121 stocks declined on NSE, compared with 657 stocks advancing, and 350 stocks remaining unchanged. On the BSE, 1,636 stocks ended in the red against 976 stocks closing higher.The negative sentiment rubbed off on most sectoral indices on Friday. Of the 19 sectoral indices compiled BSE, all barring BSE IT and BSE Teck ended the day in red with BSE Bankex losing nearly 2.5%.