RBI rate cut fails to cheer markets; Sensex plunges over a percent

Thursday was yet another bad day for Indian equity benchmarks, as both the larger peers, Sensex and Nifty closed with steep losses of over a percent, even though the Reserve Bank of India (RBI) cut repo rate by 25 basis points to lowest in nine years and changed policy stance to ‘Accommodative’ from ‘Neutral’. After a cautious start, markets remained under the grip of bears, amid reports that India’s services sector growth eased further in the month of May, as disruptions arising from the elections in the earlier part of the month hampered growth of new work intakes. As per the survey report, the seasonally adjusted Nikkei Services Business Activity Index eased to 50.2 in May from 51 in April. However, the Nikkei India Composite PMI Output Index -- which measures both manufacturing and services -- was at 51.7 in May, unchanged from April.

Key indices extended their losses in the second half of trading session to settle near their intraday low points, as the Reserve Bank of India lowered the economic growth forecast for the current fiscal to 7 per cent due to the slowdown in domestic activities and escalation in a global trade war. In the April monetary policy, the growth of Gross Domestic Product (GDP) for 2019-20 was projected at 7.2 per cent. Trading sentiments also remained lackluster with the India Meteorological Department’s (IMD) statement that the onset of monsoon is likely to be delayed by a week and it is now expected to arrive only by June 8. The normal onset date for monsoon over Kerala is June 1 which also marks the official commencement of the four-month-long rainfall season.

On the global front, European markets were trading in green, after the UK service sector growth improved more-than-expected to a three-month high in May. The survey data from IHS Markit showed that the Chartered Institute of Procurement & Supply Purchasing Managers' Index for services rose to 51.0 in May from 50.4 in April. Asian markets ended mixed, as the International Monetary Fund cut China's growth forecast for this year and next, citing downside risks and high uncertainty surrounding trade tensions, and said more policy easing may be needed if the conflict escalates. The lender lowered the growth forecast for this year to 6.2 per cent from 6.3 per cent seen in April. The projection for next year was trimmed to 6 per cent from 6.1 per cent.

Back home, banking stocks remained in watch, amid reports that the Reserve Bank will issue a revised circular on bad loan recognition within the next three-four days, replacing the February 12 circular that was struck down by the apex court. Stocks related to the steel  and construction industries remained in focus with credit rating agency ICRA’s report stating that while the performance of domestic steelmakers is likely to be lower in the first quarter of the current financial year as compared the previous year due to several headwinds, the construction sector will be at the forefront of demand recovery in the second half.

Finally, the BSE Sensex slipped 553.82 points or 1.38% to 39,529.72, while the CNX Nifty was down by 177.90 points or 1.48% to 11,843.75.

The BSE Sensex touched a high and a low of 40,159.26 and 39,481.15, respectively and there were 08 stocks advancing against 23 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 1.77%, while Small cap index was down by 1.60%.

The top losing sectoral indices on the BSE were Oil & Gas down by 3.04%, Capital Goods down by 2.81%, PSU down by 2.47%, Bankex down by 2.34% and Industrials down by 2.13%, while there were no gaining sectoral indices on the BSE.

The top gainers on the Sensex were Coal India up by 1.92%, Power Grid up by 1.27%, Hindustan Unilever up by 1.13%, Hero MotoCorp up by 0.94% and NTPC up by 0.74%. On the flip side, Indusind Bank down by 6.97%, Yes Bank down by 6.15%, SBI down by 4.34%, Tata Motors - DVR down by 3.98% and Larsen & Toubro down by 3.41% were the top losers.

Meanwhile, Newly-appointed Micro, Small, and Medium Enterprises (MSME) Minister Nitin Gadkari has said that his Ministry will work with its commerce counterpart to identify goods being imported by India and look at the possibility of manufacturing them by MSMEs. He noted that the move would help in cutting India’s import bill. He added that the ministry would also look into the reasons which are leading to closure of small units.

The Minister further stated that small scale industries need to be promoted to further push the country's growth. He also said that the ministry would focus on supporting micro units and village industries to promote rural economy and create jobs. He noted that raw materials like stubble which are available in rural areas can be used by small units to manufacture different products.

Gadkari has highlighted that MSME sector plays a vital role in creating employment and pushing India’s Gross Domestic Product (GDP) growth. He also indicated that MSMEs contribute around 45 percent in the country's exports, about 25 percent to the GDP from service activities and over 33 percent to the manufacturing output of India.

The CNX Nifty traded in a range of 12,039.80 and 11,830.25. There were 14 stocks advancing against 36 stocks declining on the index.

The top gainers on Nifty were Coal India up by 2.96%, Titan up by 1.76%, Hero MotoCorp up by 1.50%, NTPC up by 1.30% and Power Grid up by 1.06%. On the flip side, GAIL India down by 11.49%, Indiabulls Housing Finance down by 7.73%, Indusind Bank down by 6.84%, Yes Bank down by 5.86% and SBI down by 4.57% were the top losers.

European markets were trading in green; UK’s FTSE 100 increased 43.72 points or 0.61% to 7,263.94, France’s CAC rose 33.34 points or 0.63% to 5,325.34 and Germany’s DAX was up by 89.66 points or 0.75% to 12,070.47.

Asian markets ended mixed on Thursday after the US and Mexico failed to reach a deal during their trade talks on Wednesday. Chinese shares ended lower after the International Monetary Fund cut China's growth forecast for this year and next, citing downside risks and high uncertainty surrounding trade tensions. The lender lowered the growth forecast for this year to 6.2 percent from 6.3 percent seen in April. The projection for next year was trimmed to 6 percent from 6.1 percent. On conclusion of the IMF staff Article IV mission to China, the lender said it expects China's growth to gradually slow to 5.5 percent by 2024, as the economy moves towards a more sustainable growth path. Japanese shares ended on a flat with negative bias amid trade uncertainties after the US and Mexico failed to reach a deal on immigration issues. Meanwhile, markets in South Korea, Malaysia and Indonesia were closed for holidays.