Rate tremors rock markets

Sensex plunges by 557 points; banking, realty & auto indices worst hit .

The banking sector stocks were the worst hit on Tuesday even as the the BSE Sensex, the Bombay Stock Exchange’s benchmark index, fell 3.89 per cent or 557 points to close at 13,791 points after the Reserve Bank of India (RBI) hiked the key lending rate by 50 basis points (bps).

The BSE Bankex Index was the top-most loser among the sectoral indices, plunging by 8.31 per cent. The other interest rate-sensitive sectoral indices like the BSE Realty and the BSE Auto were down 5.54 per cent and 4.04 per cent respectively.
 

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INDICES

28/07/2008 29/07/2008 % chg Bankex6761.826199.60-8.31 Realty5079.124797.71-5.54 Cap goods11906.8111320.60-4.92 Power2579.812473.81-4.11 Auto3723.803573.21-4.04 Sensex14349.1113791.54-3.89 Oil & Gas9652.909303.57-3.62 Metal12366.7212130.36-1.91 Healthcare4202.674133.14-1.65 Con durables3660.723621.63-1.07 IT Sector3606.813588.57-0.51 FMCG2135.112136.280.05

Top banks, including HDFC Bank, ICICI Bank and State Bank of India, fell in the range of 6-9 per cent and were the top losers among the Sensex stocks.

RBI on Tuesday raised the cash reserve ratio (CRR) by 25 basis points and the repo rate by 50 basis points during the first-quarter review of its monetary and credit policy.

Foreign institutional investors (FIIs) were the top contributors to the downfall. According to provisional figures, they sold stocks worth Rs 538.27 crore on Tuesday, while domestic funds offloaded Rs 254.59 crore worth of equity.

“The move by the country’s central bank was not expected by the markets,” said Sandesh Kirkire, chief executive officer, Kotak Mahindra Mutual Fund.

Kirkire said RBI’s single-point agenda to curb inflation would result in a significant slowdown in the corporate growth.

“We seem to be back in the situation similar to the one in 2000, when project costs for companies had shot up due to high borrowing costs. Stock markets are going to have a tough time ahead,” he said.

The Reliance Industries stock, which has the highest weightage in the index, was down 4.41 per cent at Rs 2,085 on concerns of declining refining margins.

The market breadth was weak on BSE as 1,672 shares declined against an advance of 963 shares. In the near term, the market volatility may come down once the July series of futures and options (F&O) contracts expire on Thursday.