Markets in red as RBI rate cut fails to excite investors | Stock Market News

Mumbai: Stock market constituents expecting an outsized rate cut, a shift in monetary policy stance and comments on durable liquidity were left disappointed on Friday after the Reserve Bank of India’s Monetary Policy Committee meeting.

The MPC’s 25 basis point rate cut—its first in nearly five years—fell below the expectations of certain quarters.

The Nifty 50 ended the day’s trading lower by a fifth of a percent at 23,559.95 points while the Sensex settled a fourth of a percentage point lower at 77,860.19. Foreign portfolio investors, or FPIs, sold shares worth a provisional ₹470.39 crore and retail investors on BSE offloaded equity worth ₹198 crore, per the stock exchange.

This offset provisional buying of ₹454.20 crore by domestic institutional investors, or DIIs, as reported by BSE .

The rupee gained 15 paise to close at 87.43 to the US dollars as “rupee bears” expecting a 50 bps rate cut covered their shorts. 

The benchmark 10-year government bond yield rose 5 bps to close at 6.7% on the policy stance being left unchanged at ‘neutral’ and RBI governor Sanjay Malhotra not providing any indication on further rate cuts, according to a bond dealer at a private bank.

“Certain market quarters were anticipating a 50 bps cut and had built aggressive shorts on the rupee, which were covered, resulting in the rupee gaining to the dollar,” he explained, declining to be identified. “Also, status quo on the stance disappointed markets.”

Ashish Gupta, chief investment officer at Axis Asset Management, agreed.

“Certain equity market constituents had anticipated a 50 bps cut along with a change in stance and specific commentary on liquidity, which didn’t materialise the way they reckoned,” Gupta said about the tepid market reaction.

He expects the markets to consolidate with a downward bias.

India’s Nifty 50 and Sensex have fallen 10.3% and 9.4% each since scaling a record high of 26,277.35 and 85,978.25 points, respectively, on 27 September due to heavy selling by FPIs in the cash and derivatives markets.

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FPI’s ‘quit EM movement’

Foreign portfolio investors have sold shares worth ₹2.47 trillion in the cash market since October, while domestic institutional investors have net purchased ₹2.79 trillion worth of shares in that period.

However, the markets have fallen as DIIs are giving exits to FPIs by bidding lower, per Nilesh Shah, managing director of Kotak Mahindra AMC.

Shah believes FPIs are likely to persist with their “quit emerging market movement” in favour of investing in the US markets, where yields have risen to 4.5% from 3.7% in mid-September on inflationary expectations of US President Donald Trump’s tariffs.

“When you can get yields of 4.5% back home, why take the trouble of investing in riskier EM assets,” he said, adding that DIIs were cushioning the impact of FPI sales but by bidding lower.

Also read | Growth, inflation, financial stability: It’s a season of major trade-offs for India’s policymakers

Aside from selling cash market shares, FPIs have also raised record hedges on index derivatives to protect their portfolios. On Friday, they net sold index futures contracts worth ₹1,082.9 crore.

This took their cumulative net shorts to a record 162,468 contracts, adjusted for the lot size increase by three times to 75 shares for Nifty and by two times to 30 shares for Bank Nifty from January-end, per analytics firm IndiaCharts.

Interest rate sensitives like banks underperformed on Friday with the stocks of ICICI Bank Ltd, HDFC Bank Ltd and State Bank of India falling between 1% and 2%. 

The auto sector outperformed partly on account of the rate cut and partly because of a good set of quarterly earnings. Bajaj Auto Ltd gained 1.69% on expectations that lower monthly repayments on account of RBI’s rate cut would boost two- and three-wheeler sales. Mahindra and Mahindra Ltd jumped 1.69% as its December-quarter profit jumped 20% from a year earlier.