Benchmark equity indices declined for the third straight day as Punjab National Bank’s (PNB) weak third quarterly results and the Reserve Bank of India’s (RBI) decision to keep interest unchanged sparked selling by institutional investors.
The Sensex fell 0.42% or 122.13 points to 29000.14, led by shares of banking, real estate and pharmaceuticals companies. The Nifty settled at 8756.55, down 40.85 points or 0.46% from the previous close.
Overseas investors accounted for bulk of the selling. Foreign portfolio investors (FPIs) were net sellers to the tune of $45 million (R264.35 crore) in the cash segment showed provisional data from stock exchanges, paring CY15 inflows to $2.4 billion. Foreign funds sold shares worth $118 million on Monday, official data showed.
Domestic institutions also sold shares to the tune of R137.31 crore ($23 million) on Tuesday, taking their selling streak to 15 consecutive sessions. DIIs have sold shares close to R8,400 crore since the beginning of January 2015.
PNB, on Tuesday, reported an increase in bad debts, leading the shares down as much as 7.8% – the biggest single day fall since April 2009, sending the BSE Bankex (-2.61%) to its lowest level in two weeks. All other constituents of Bankex also ended down 1-5%.
While the RBI decision was widely in-line with market expectations, a section of the industry had hoped of another rate cut in order to realign monetary policy action with scheduled meetings.
“Clearly with the budget coming in a few weeks from now, the next rate cut now seems likely to be off-cycle, perhaps in the first week of March.
Also, by that time the central bank would have more information about the rebased-CPI and new GDP figures. Further action would be toward more easing, as soon as a responsible budget and evidence of continued disinflation materialise,” said Taimur Baig, Deutsche Bank’s chief economist.
Nomura economist Sonal Varma said that RBI’s policy stance has to remain neutral to tight to ensure CPI inflation remains in the range of 4% (+/-2%) in the medium-term.
“We do not expect further sustained disinflation and expect real GDP growth to pick up gradually, which should result in a gradual narrowing of the output gap. We do not see the room for aggressive easing in the current rate cut cycle,” Varma said.
The Street is anticipating a cut of 75 bps to 100 bps in key rates by March 2016, shows poll conducted by various analysts and economists.
Market breadth was weak. Sixteen out of 30 Sensex companies ended in the red. Overall, 1,556 companies ended in the red as against 1,310 companies that ended positive.