On a day the central bank cut the benchmark lending rate to lowest level in over nine years, rate sensitive stocks continued their downward spiral. Nifty Auto index, which has been badly bruised so far and is down 26.5% year-to-date, declined further on Wednesday. While auto stocks slid as much as 2.2%, Nifty Realty and Nifty Bank fell 1.43% and 1.14%, respectively. Conventionally, rate sensitive stocks tend to move up when RBI reduces interest rate as the cut in turn will boost credit growth in the banking system, there by giving more money in the hands of customers.
Barring Hero MotoCorp and MRF, all members of the Nifty Auto index ended the day in red with stocks such as Tata Motors, Mahindra & Mahindra, Ashok Leyland, Motherson Sumi and Bosch testing their 52-week lows. While the stock of RBL Bank plummeted 8.02% to hits its lowest level since January 2017, Bank of Baroda and Punjab National Bank came off 6.3% and 5.7% respectively. Shares of the largest state-owned lender State Bank of India declined 3.8%.
Arun Thukral, MD & CEO, Axis Securities said the 110 basis points (bps) cut in the current easing cycle would benefit the demand in interest-sensitive sectors mainly real estate, automobile, consumer durables etc. as and when it is transmitted by the banking system.
“Transmission is among the key factors for improving the investment climate in the country,” said Thukral. Among realty stocks, Indiabulls Real Estate crashed 16.72% followed by Oberoi Realty, which was down by 2.05%. Godrej Properties and DLF dropped 1% each.
Most economists had cut their GDP estimates citing weak monsoon, slowing global growth, and sluggish high-frequency data for the first quarter. The economy shows few signs of recovery; growth of eight core industries dropped to 0.2% in June, with oil-related sectors and cement production contracting. Auto sales continued to collapse in July with Maruti reporting monthly volumes of below one lakh, a first in two years.
The Sensex closed 286 points down at 36,690.50, while Nifty fell 92.75 points to close at 10,855.50.
