Rate Cut Fails to Awe India Stocks as RBI Cuts Growth Forecast
What explains the lack of excitement? Along with borrowing costs, the central bank also reduced the economy’s growth outlook.
(Bloomberg) -- So much for the Reserve Bank of India surprising markets with a bigger-than-expected interest rate cut.
The benchmark stock index closed at a five-month low on Wednesday, hardly the reaction you’d expect when the central bank lowered the main rate by 35 basis points, a move that was predicted by only one out of the 40 analysts surveyed by Bloomberg. This is the fourth cut by the RBI so far this year
What explains the lack of excitement? Along with borrowing costs, the central bank also reduced the economy’s growth outlook again. And some analysts said the policy was bereft of any direct measures to lift waning demand and stem the crisis among shadow banks that’s curbed borrowings by consumers.
“The RBI cutting its growth estimate for gross domestic product to below 7%, while widely expected, may not go down well with the market in short term," said Rajiv Singh, chief executive officer with Hyderabad-based Karvy Stock Broking Ltd.
Gauges of metal producers and automakers -- sectors most sensitive to changes in interest rates -- were among the hardest hit, falling by at least 2% each. The slowdown is cyclical and needs adequate steps by all stakeholders to address the problem, Governor Shaktikanta Das said, while asking reporters not to read too much into the size of Wednesday’s move.
“Growth is the only concern. When things are put in black and white, it does matter,” said Dharmesh Kant, head of research at Indianivesh Securities Ltd.
Here’s a roundup of what other analysts and fund managers are saying:
Max Life Insurance (Mihir Vora)
- Lowering GDP estimates points to increasing concerns on growth
- Expect another 25 bps cut in rates over next two quarters as growth prospects may not change quickly
- Need focused approach to address issues in segments like non-bank finance companies and housing finance, failing which transmission to lower rates may not happen fast enough
Julius Baer Wealth Advisors (Umesh Kulkarni)
- Accommodative stance leaves room for another rate cut
- Quantum, timing of next cut remains a question as RBI awaits transmission of 105 bps of cumulative reduction this year
- A 15 bps follow-up rate cut looks more probable than 25 bps in 2019
Yes Securities (Amar Ambani)
- Transmission of cuts depends on pace of deposit growth with banks, lending opportunities and risk appetite
- Lending to shadow banking slow due to problem of confidence
To contact the reporter on this story: Nupur Acharya in Mumbai at nacharya7@bloomberg.net
To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Ravil Shirodkar
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