NEW DELHI: Dashed hopes of future rate cuts by the US Federal Reserve and no change in policy stance by Bank of Japan (BoJ) revived concerns over global slowdown, hurting domestic stock indices. Weakness in domestic banking stocks ahead of weekly F&O expiry also weighed on investor sentiment.
Sensex plunged 470.41 points or 1.29 per cent to 36,093.47, while Nifty tumbles 135.85 points or 1.25 per cent to 10,704.80.
US Fed commentary
Fed policymakers decided to cut rates by 25 bps but Fed Chairman Jerome Powell’s cautious approach to any further reductions in borrowing costs, and division among the US central bankers dampened the spirit of traders.
The commentary raised uncertainty over how much further the US policy rates might fall.
Powell said the rate cut was “to provide insurance against ongoing risks” including weak global growth and resurgent trade tensions. “If the economy does turn down, then a more extensive sequence of rate cuts could be appropriate,” he said. “We are going to be highly data-dependent …. We are not on a preset course.”
“One of the biggest factors for today’s fall is the mixed signals that we got from the US Fed review. While the rate cut was on the expected lines, the Fed committee seems to be divided over future rate cuts,” said Siddharth Khemka, Head of Research (Retail) at Motilal Oswal Financial Services.
Tax collection concerns
Investors on Dalal Street were also worried over weak tax collection.
As against a steep 17.5 per cent higher tax collection budgeted for the full year, the government could mop-up only 4.7 per cent more so far this year, with the direct tax kitty growing to Rs 5.50 lakh crore as of September 17, up from Rs 5.25 lakh crore a year-ago, PTI reported.
Selling in banking stocks
Banking stocks fell ahead of weekly expiry in Bank Nifty F&O expiry. Meanwhile, rating agency Moody’s said said Altico Capital India’s default is credit negative for banks with significant exposure to real estate sector. Indian banks also have indirect exposure to the real estate sector through their lending to NBFCs and HFCs, which also lend to real estate developers.
Intensifying FII selling
Unabated selling by overseas investors continued to hurt the market sentiment. Foreign institutional investors (FIIs) sold shares worth over Rs 1,850 crore in the past three trading sessions. Overall, they have offloaded shares worth around Rs 31,300 crore since the beginning of the ongoing quarter.
Lack of adequate economic boosters
Macro number for India has not been very encouraging in the recent past. Even, the corporate performance has failed to excite the market participants as some sectors are in slowdown.
“Our market has constantly been under pressure because of concerns over the economic slowdown, slower demand and consumption leading to a slower growth in a lot of companies. Earning growth has not happened,” said Khemka.
Even as the government has announced a few measures to boost the economy, they have fallen short of the market expectations, Khemka said.
“The market is not satisfied with the stimulus packages announced in India and the liquidity ease provided by Fed & ECB. Market assumes that the downside in economy will continue until supported by fiscal stimulus in India, more rate cuts and QE in global financial system. The other devils which have popped up recently are oil prices and geo-political issues,” Vinod Nair, Head of Research at Geojit Financial Services.
BoJ warns of growth risks
The Bank of Japan, while keeping monetary policy steady on Thursday, signalled the chance of expanding stimulus as early as its next policy meeting in October due to risks threatening the economy.
“We’re yet to see signs of a pickup in overseas growth … We’re not changing our baseline scenario on the overseas economy. But risks surrounding overseas growth are heightening,” said Haruhiko Kuroda, Governor, Bank of Japan.