Markets Give Thumbs Down to RBI’s 0.25% Rate Cut

Tue, 5 Apr 11:30 am

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After opening the day on a weak note, the Indian indices went on to extend their losses after the Reserve Bank of India (RBI) slashed repo rate by 0.25 %. Sectoral indices are trading on a negative note with stocks from the banking, telecom and capital goods sector witnessing maximum selling pressure.

The BSE Sensex is trading down 302 points (down 1.2%) and the NSE Nifty is trading down 102 points (down 1.3%). The BSE Mid Cap index is trading down by 0.8% and the BSE Small Cap index is trading down 0.7%. The rupee is trading at 66.16 to the US$.

In its monetary policy decision today, the RBI slashed repo rate (rate at which banks borrow money from the RBI) by 0.25 %. Post this reduction, the repo rate now stands at 6.5%.

Further, the RBI reduced minimum daily maintenance of cash reserve ratio (CRR) from 95% of requirement to 90% with effect from the fortnight beginning April 16, 2016. However, it kept cash reserve ratio and statutory liquidity ratio unchanged.

In a recent column in Vivek Kaul's Diary, Vivek had made a case of 0.25% rate cut. Some of his reasons were that RBI should adopt a wait and watch policy to monitor whether banks pass on the cut to lenders before going for a further slash in the repo rate. To know more about Vivek's views on interest rates and RBI's policies, please click here.

Further, RBI expects CPI inflation at around 5% in 2016-17 and economy to grow 7.6% in FY17.

Stocks in the energy space are trading on a mixed note with Gulf Oil Lubricants and Cairn India leading the losses.

According to Reuters data, India's Iran oil imports topped 5,00,000 barrels per day (bpd) in March. This was recorded as the highest in at least five years.

It was reported that Indian refiners together imported 5,06,100 bpd oil from Iran last month, a jump of about 135% from February 2016.

Further, for the entire fiscal year ended March 31, Indian refiners shipped in 14.4% more oil from Iran at about 2,51,100 bpd. The increase was the largest annual growth since FY08.

Going by individual players, Essar Oil was the biggest importer of Iranian oil in March with about 2,07,400 bpd oil. This was followed by about 1,30,000 bpd by Mangalore Refinery and Petrochemicals Ltd and about 90,600 bpd by Reliance Industries, its first shipments in about six years. One shall note that Reliance Industries has resumed its oil purchases from Iran after a multi-year lay-off.

It was also reported that Indian Oil Corp, the country's biggest refiner and not a regular buyer of Iranian oil, shipped in about 67,000 bpd from Tehran last month.

All of this comes as India has resumed its unrestricted import of oil from Iran with international nuclear sanctions on Iran being lifted in the last financial year. As per the industry sourced, Tehran is targeting India besides its traditional European partners as one of its top destinations. Further, Tehran is not considering increasing its oil exports to China, South Korea or Japan due to the dampened demand witnessed there.

To keep a regular tab on the movements in crude oil prices, you can read weekly updates from the Daily Profit Hunter team here. Their roundup tracks the developments in the global economy as well as currency and commodity markets.

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