Indian stocks and the rupee dropped on Wednesday after the country’s central bank slashed interest rates for the second time this year. The blue-chip Nifty 50 index dropped by 0.65% to ₹22,400, while the BSE Sensex retreated to ₹74,000. The USD/INR exchange rate has surged in the past four straight days, moving from a low of 84.95 last week to 86.56.
RBI slashes interest rates
The Reserve Bank of India (RBI) was the second major central bank to deliver its interest rate decision after the RBNZ. As was widely expected, the bank slashed rates to 6.0%. It was the second cut of the cycle.
The bank hopes that the rate cuts will help to support the economy as risks remain elevated. The most important risk is the ongoing trade war between the United States and India that started on Donald Trump’s Liberation Day.
Trump announced that he would add a huge tariff on all goods imported from India to deal with what he sees as unfair trade practices. A fully blow trade war between the two counties would have major implications.
The trade volume between these two countries has grown in the past few years. This growth was mostly because of the ongoing supply chain diversification as many manufacturers moved their operations from China.
The total trade volume between the US and India stood at over $200 billion. Inda exported goods worth over $84 billion to the US, while the US exported goods valued at over $41.8 billion. The other part of the trade relationship is made up of services.
Economists now expect the RBI to deliver more interest rate cuts this year under Governor Sanjay Malhotra. Molhotara has embraced a more growth-oriented approach than Shaktikanta Das, replaced last year.
In addition to interest rate cuts, he has also intervened in the market by injecting over $80 billion in the last two months. These interventions helped to stabilize the Indian rupee.
Top Nifty 50 and Sensex movers after RBI decision
Most companies in the Nifty 50 and Sensex indices dropped after the RBI decision and as the US and China trade war escalated. The top laggards were technology consulting companies like Wipro, Tech Mahindra, and Infosys were the top laggards.
These consulting firms have faced a double whammy of potential corporate IT spending cuts because of the trade war impact. The US government is cutting spending under the Elon Musk project. They have all crashed by over 25% this year.
The other top laggards included HCL Technologies, Shriram Finance, Tata Steel, and Adani Enterprises. All these stocks, except Shriram, have crashed by double digits this year.
On the other hand, the top performers in the Nifty 50 index were Zomato, Power Grod Corp, Nestle India, Mahindra & Mahindra, and Hindustan Unilever.
The Nifty Bank Index also declined after the RBI decision. This decline was led by Bank of Baroda, Canara Bank, State Bank of India (SBI), ICICI, Axis Bank, and IndusInd Bank.
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