The latest rate action by the Reserve Bank of India (RBI), the 11th raise in a row, has sent the markets spiralling downwards. The damage has been so extensive that one out of six stocks has nosedived to one-year low on worries that higher interest rates will pinch corporate profit growth.
As many as 555 stocks, including Reliance Industries, Wipro, BHEL and Steel Authority of India, have hit 52-week lows on the Bombay Stock Exchange (BSE) in the past eight trading days.
A total of 32 stocks belonging to the A group, as many as 428 stocks from the B group, 92 from T group and three from the Z group have touched yearly lows. The benchmark index has declined by 1,178 points or 6.2 per cent during this period to close at 17,693 on Thursday.
JSW Steel, Jindal Steel, Financial Technologies, Aban Offshore, Educomp Solutions, Crompton Greaves and Thermax are some of the frontline stocks that have touched 52-week lows.
Among the sectoral indices, the BSE metal and power indices have hit one-year lows, while oil and gas, capital goods and realty indices are hovering around their 52-week lows. Investors have seen market value erosion of Rs 3,53,265 crore since the last policy day. The total market capitalization of actively traded stocks on the exchanges has declined to Rs 64,82,650 crore.
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The RBI raised its key lending rates by a steeper-than-expected 50 basis points at eight per cent on July 26 to tame inflation. The rate rise was the 11th since March 2010 and the finance minister expects more rate increases, going ahead. The central bank has increased the repo rates by 325 basis points from 4.75 per cent on April 21, 2009.
The foreign institutional investors (FIIs) have pulled out equity shares amounting to Rs 1,829 crore from Indian market in the last eight trading days.
Most state-owned banking shares, including Corporation Bank, Canara Bank, Bank of India, Union Bank of India, Central Bank of India, UCO Bank and Vijaya Bank, have plunged to one-year lows after a slowdown in net profit growth due to higher provisioning for depreciation on investments and for standard advances.
Meanwhile, a total of 1,146 companies have declared their June quarter results and reported an average 18 per cent rise in net profit for Q1FY12 against over 23 per cent growth in the previous two quarters. The profit margins of the sample companies have dipped by more than 100 basis points each on a year-on-year basis.