On the day the Reserve Bank of India cut rates by 40 basis points and extended the moratorium on loans by another three months, Bank Nifty slumped as much as 630 points in intra-day trade on Friday before closing at 456.20 points or 2.6% lower at 17,278.90, which is its lowest level in over one-and-a-half months. The index is now just 361 points shy of its March 23 low. The broader Nifty50 closed 0.74% lower at 9,039.25, the Sensex slid 0.84% to end the day at 30,672.59 points.
Bank and financial stocks came under selling pressure as the extension of moratorium for another three months will impact the financials of the players. Moreover, the governor’s comments on more than expected deterioration in economic activity added to the concerns. Bank Nifty had reacted positively in previous two monetary policy announcements that took place in February and March. While a 75 bps (basis points) cut in March 27 pushed the Bank Nifty 1.8% higher, keeping the policy rate unchanged in February 06 saw Bank Nifty rising 1%.
With Friday’s fall, the Bank Nifty has come off 46.3% since January against 26% decline seen in benchmark Nifty50. The Nifty50 has lost about 3,129 points between January and now, and financial stocks such as HDFC twins, ICICI Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank, State Bank of India and Bajaj Finance among them contributed almost 68% to the Nifty’s fall.
Lalitabh Shrivastawa, deputy vice-president – Research, Sharekhan by BNP Paribas, said “The extension of moratorium would be negative for lenders, even though to some extent the rate cut will be helpful for credit growth, and also bring down the costs for banks and NBFCs. At present, the growth outlook weakness has been the key concern of the MPC.”
With banks are increasingly becoming risk averse and credit offtake slowing in the recent past, the combined excess money parked by all lenders with the Reserve Bank of India (RBI) had risen to a record Rs 8.53 lakh crore on May 5. Market participants observe, until the lockdown completely lifted and there is a sense of normalcy among common people, these steps may not have a direct benefit.
Dhiraj Relli, MD & CEO, HDFC Securities, said, “The cautious language in the statement of the governor raises concerns about the state of the economy and its path going ahead. Shareholders of banks are worried by the current economic conditions and the pain that is postponed due to the moratorium being extended.”
The government and the RBI may be using up all their ammunition a little prematurely to fight the current situation. One wonders whether all these relief measures would have been more impactful after the lockdown was completely lifted, added Relli.
The Nifty Realty Index slid 1.2% to close the session at 163.55 points, while the gauge for auto stocks — Nifty Auto — pared initial losses to close marginally higher at 5,767.00, up 0.3%. In a separate note, ICICI Securities said, the temporary closure of malls across Indian cities for nearly two months has led to a revenue loss for retailers along with outstanding rent payment obligations. “While mall consumption may eventually normalise by Q4FY21, mall owners may have to incur rental income losses of 25-40% in FY21E depending on extent of rental waivers offered, if any, and possible shift to a pure revenue share model from minimum guarantee once malls reopen,” ICICI Securities wrote in a note to investors.