The 25 basis points (bps) rate cut by Reserve Bank of India (RBI) failed to cheer banking shares on Tuesday as the Bank Nifty lost more than 3% amid weakness across global markets. Shares of banks declined in the range of 1-6% as the Bank Nifty closed 495.6 points or 3.06% lower at 15,695. Canara Bank was the biggest loser among Bank Nifty constituents as its shares slumped more than 6% to close at Rs 186.35 apiece in the NSE, data showed. Shares of ICICI Bank declined 5.5% to end at Rs 225.9 apiece while shares of SBI — India’s largest public sector bank – closed 5.32% lower at Rs 184.35 per share.The benchmark Nifty closed 155.6 points or 2.01% lower for the session.
According to Motilal Oswal, CMD of Motilal Oswal Financial Services, the 25 bps rate cut was largely anticipated by the street and was a part of the “cautious” approach adopted by the central bank. “This caution is well-placed given the upside risks to inflation targets emerging from the following — possibility of a disappointing monsoon season, stabilisation or even possible hardening of international oil prices, and the implementation of the Pay Commission recommendations,” Oswal said.
Apart from rate cut, Raghuram Rajan also announced a host of measures on the liquidity front, including narrowing of the policy rate corridor to 0.5% from 1% points earlier. “We believe the narrowing of the corridor supports our steepening view in both swap and bond curves. This will reduce the volatility in overnight rates and will ensure that the RBI can become aggressive with liquidity infusions,” said Sonal Verma, India economist at Nomura. “I still remain broadly positive on rupee and remain short $/Rs for several reasons, including the positive macro backdrop, continued strength in domestic demand and an improving manufacturing sector,” Verma added.
The Bank Nifty has climbed a little more than 12% since the beginning of March, 2016. This rally has provided some relief to the markets as the banking scrips dipped to new lows in the first three months of the current calendar. The banking index lost 18% between January to March, 2016, NSE data showed.
* Bank shares fell in the range of 1-6% as the Bank Nifty closed 495.6 points lower to 15,695
* Canara Bank’s shares slumped more than 6% to close at Rs 186.35 apiece
* ICICI Bank shares fell 5.5% to end at Rs 225.9 apiece
* SBI closed 5.32% lower at Rs 184.35 per share