Markets trade flat in late-noon trades

Markets turned volatile as the Reserve Bank of India raised its key rates today. The Sensex surged to a high of 20,418 as RBI's move signalled a pause in its policy tightening measures. However, it erased gains in late-noon trades and slipped to a low of 20,282. The index has recovered marginally now and is trading at 20,357.

Nifty is trading flat at 6,117.

The RBI in its policy review raised key lending rate by 25 basis points, the sixth such hike since March 2010, as it looks to achieve its end-March 2011 projection of headline inflation at 6%. Rate hikes by the RBI have a direct impact on interest rates offered by banks on loans to Indian companies.

RBI has clearly signaled that it would prefer banks to discontinue with teaser schemes, leading to some moderation in demand. BSE bankex is trading flat at 14,529. Rate sensitive - BSE Realty index has shed 2.3% to 6,353 on fears that the loan demands will face a crunch as banks would be reluctant to give out teaser rates.

"Announcement of reduction in Loan to Value ratio from 95% to 80%, Increase in risk weights for loan of more than Rs.75 lakhs from 100% to 125% would only have psychological impact on real estate sectors as most of the loans are within revised limits. However, increase in provisioning requirement for Teaser Rates from 0.5% to 2% for banks would have impact on banks which have offered such loans", Aneesh Srivastava, CIO - IDBI Federal Life Insurance.

Indiabulls Real Estate is leading the fall among realty stocks. The stock is down 5% at Rs 190. DLF and Unitech have shed 3% each at Rs 349 and Rs 86. D.B.Realty, Phoenix Mills and Sobha Developers are among the sector losers.

Market heavyweight, Reliance, has dropped 1.5% to Rs 1,076.

Auto stocks are in red. Tata Motors and Mahindra and Tata Motors have slipped 1.3% each to Rs 1,154 and Rs 755, respectively. Maruti Suzuki has dropped marginally to Rs 1,500.

Communications stocks - Bharti Airtel and Reliance Communications have slipped 1% each. Metal stocks - Sterlite and Jindal Steel are also in red.

Meanwhile, ACC has gained 4.4% to Rs 1,059. Larsen & Toubro has added 2.6% to Rs 2,135.

Wipro has advanced 2% to Rs 433. Tata Steel, ITC and Hero Honda are also in green.