What made Sensex drop 1,700 pts from day’s high after much anticipated RBI repo rate cut – The Financial Express

Extending the rally from the last three sessions, share market benchmarks Sensex and Nifty gained more than 3 per cent in the opening session on Friday on hopes of much-awaited measures by the Reserve Bank of India. The 30-share index soared over 1,100 points to reclaim 31,000-level and the broader Nifty 50 index went past the crucial 9,000-mark. However, stock markets failed to hold the gains after the RBI announced an emergency repo rate cut by 75 bps to 4.4 per cent, and reverse repo rate cut by 90 bps to 4 per cent.

While experts hailed the decisions taken by RBI amid the nationwide lockdown in a bid to contain the economic fallout of fast-spreading coronavirus (COVID-19), what made headline indices fall 1,700 points from day’s high? “While the effort of the RBI is a welcome move, it makes an evident thing, even more, confirmed that we will face extremely tough times for the economy going ahead. Markets were anyway moving higher on purely short-covering and buying was anyway missing from the scene,” technical analyst Milan Vaishnav told Financial Express Online.

Sensex and Nifty gave up all the opening session’s gains after the RBI announcements. “This is a massive supply-side push by the government. However, there is nothing done on the demand-pull side. If we take a look back, the government has traditionally come up with supply push measures but has remained absolutely missing on demand-pull steps. We expect extremely tough times for the economy ahead and the steps of RBI are nothing but acknowledgment and admission of the obvious scenario,” Vaishnav further added.

Profit booking

Analysts see the fall in the markets as an act of profit booking by the traders. S&P BSE Sensex was trading 108 points or 0.36 per cent down at 29,838 in early afternoon in a highly volatile session. The broader Nifty 50 index ruled flat at 8,652 points. “The MPC started its meeting on 24 (24th of March) and thus markets were already anticipating some measures by RBI. Which explains the last few days’ rally. Now that the event is over, the markets, as always, sold off mainly due to profit booking by traders,” Narendra Solanki, Head Fundamental Research, Anand Rathi Share and Stock Brokers, told Financial Express Online.

“It was expected that the RBI and Finance department will soon take action. So, in anticipation of such an act, buying has emerged at bottom and now it is profit booking,” Vishal Wagh, Head of Research, Bonanza Portfolio, said.

Once in a lifetime opportunity

“Regular profit booking has happened after the event. In the last few days a 20% rally has been witnessed in the markets. Fear will see ‘sell’ on rallies till we see more positive on the abatement of the virus. It’s a once in a lifetime opportunity for those who can live with the volatility. We expect Nifty to do very well in April as monetary policy globally will see risk on trade,” Sanjiv Bhasin, Director at IIFL Securities Ltd, told Financial Express Online.

‘Buy on rumors, sell on news’

Financial markets across the world have been reeling under the pressure due to the deadly virus COVID-19. Coronavirus has disrupted the demand, supply and markets. It’s a three-in-one bazooka, S Ranganathan, Head of Research, LKP Securities, told Financial Express Online. Stock markets work on the concept of ‘buy on rumors and expectations, and sell on the actual news’, he added. “Markets have their own way of reacting. One should not see these reactions on the basis of what is put out by RBI and what the government has put out by the way of stimulus yesterday. It doesn’t mean that another stimulus is not coming,” Ranganathan said.