Sensex crashes 617 pts on interest rate jitters

The Reserve Bank's latest CRR and repo rate hikes reverberate across markets

Second biggest single-day fall erodes Rs 1,39,086 cr of investors' wealth.

Indian markets would like to forget the first trading day of the new financial year in a hurry. Stocks slid, posting their biggest drop in 10 months, on concerns over rising interest rates and their possible impact on the earnings momentum of Indian companies.

High crude prices and selling by foreign funds also contributed to the weak sentiment, triggering the second biggest single-day fall for the Sensex and wiping out Rs 1,39,086 crore of investor wealth.

The index today plunged 616.73 points (4.73 per cent) to 12,455.37. The biggest single-day fall was on May 18 last year when the index plunged 826 points. The broader Nifty-50 Index fell by 187 points (4.92 per cent) to 3,633.60. All the 30 Sensex stocks declined.

Foreign funds were net sellers of over Rs 1,000 crore in March.

Elsewhere in the region too, the markets fell. The Morgan Stanley Capital International Asia-Pacific Index slipped 0.9 per cent to 143.41.

"The markets are reacting to the interest rate hikes. There has been a tightening of liquidity. This is likely to result in a slowdown in the earnings growth momentum of companies," said R Sreesankar of IL&FS Investsmart.

Auto stocks were the hardest hit as the interest rate increases following the Reserve Bank of India's surprise hike in the cash reserve ratio (CRR) "" the amount banks are required to keep as reserves "" for the third time since December.

The BSE Auto Index dropped by 6.15 per cent, the sharpest fall among the sectoral indices. Maruti Udyog was down 8.09 per cent to Rs 753.40, Tata Motors went down by 8.04 per cent to Rs 669.25, and Hero Honda slid 6.68 per cent to Rs 639.35 on concerns that prospective car and two-wheeler buyers may postpone their purchases till liquidity eases.

Banking stocks, which will bear the brunt of the tight liquidity regime, also dropped sharply. The BSE Bankex shed 5.95 per cent, with the State Bank of India, which fell by 6.31 per cent to Rs 930.25, becoming the fifth sharpest declining stock today.

HDFC, the country's biggest home loan provider, fell by 5.77 per cent to Rs 1,432, while ICICI Bank, the biggest private sector bank, shed 5.70 per cent to Rs 804.50.

Realty stocks too cracked under the weight of the rate hikes. Unitech Ltd hit the lower circuit of five per cent to touch Rs 368, while Mahindra Gesco Developers shed 4.72 per cent to Rs 541.50.

Recently listed Sobha Developers plunged by 7 per cent to Rs 745.10, and Indiabulls Real Estate, which was demerged from Indiabulls Financial Services, dived by 7.67 per cent to Rs 275.25. Analysts said the tightening of liquidity would hamper fund flow into the realty sector from the banking system.

"The hikes will hurt the banks in terms of profitability and reduce margins by 6-8 basis points. The likely increase in lending rates should chip away at demand,"said Citigroup analyst Aditya Narain.

Among other losers, Bajaj Auto fell Rs 124.85, or 5.2 per cent, to Rs 2,300.6, and Grasim Industries slid Rs 36.65, or 1.8 per cent, to Rs 2054.6.

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AFTERSHOCK

Nifty fell 187 points to 3,633.60

Auto and banking stocks biggest casualties

FIIs net sellers of over Rs 1,000 cr in March

All 30 Sensex stocks decline

The biggest fall was on May 18 last year