The markets were riled by RBI's unexpected, albeit not unprecedented, action on the rate front at its policy review meet on Tuesday, 26 July. The all-pervading nervousness across the global markets over the US debt impasse only exarcerbated the prevailing mood. The BSE Sensex ended at 18197, weaker by 525 points or 2.8% and the Nifty shed 151 points or 2.6% to 5,482. The midcap index ended at 6915 and the smallcap index ended at 8305, lower by 1.8% each.
Signalling that battling inflation took a precedence over growth imperatives, the Reserve Bank of India (RBI) raised the repo rates by a steep 50 basis points (bps) from 7.5% to 8% and the reverse repo rate from 6.5% to 7%. The Central Bank, however, kept the cash reserve ratio unchanged. While the markets had factored in a possible 25-bps hike in the rates, the whopping 50 basis points hike came as a bolt from the blue, especially given that the banking regulator had already raised the rates by 50 basis points in May and actually hiked the rates at all its previous 10 policy meets. Moreover, in continuation of its hawkish stance on monetary policy, the central bank hinted that the latest hike may not be the last and finance minister Pranab Mukherjee also indicated as much.
The effect of the rate hike was so pronounced that the weekly market developments can be classified in terms of pre-policy and post-policy periods. The benchmark indices build on the 1%+ gains of the preceding week by adding nearly a percent on Monday, the pre-policy day. But the policy decision announcement tripped the markets into a tailspin on Tuesday; the Sensex erased all gains and plunged to a low of 18,482 - down around 450 points from the day's high of 18,944 - before ending at 18,518 - down 353 points. The bourses never really found their bearings from thereon and even the feeble attempt at a recovery on Friday proved to be short-lived.
"There are signs that growth is beginning to moderate, particularly in interest sensitive sectors. But there is no signs of a broad-based slowdown", said RBI Governor D Subbarao, adding that a moderation in demand is necessary to bring down inflation and that the US debt standoff will add risks to the global capital flows.
And, in the United States, the democrats and republicans continue to squabble over raising the $14.29 trillion debt ceiling despite warnings by the US Treasury that failure to act by next Tuesday (August 2) could force the superpower to default on its debt.
On the macro-economic front, food inflation fell to a 29-month low of 7.33% for the week ended July 16 compared to 7.58% in the previous week as protein-based items saw moderation in rate of price rise. The decline was also attributed to high base effect of 18.56% a year ago.
And on the policy front, the stock market regulator Securities and Exchange Board of India (Sebi) made sweeping changes to the takeover code by raising the open offer threshold from 15% to 25%, among other things, and also simplified the initial public offer investment procedures.
In the Sensex space, JP Associates plunged by 11.4% at Rs 66, BHEL shed 6.8% at Rs 1838 and Reliance Infra lost 6.6^% at Rs 540. Jindal Steel, SBI and Reliance Industries were the other significant losers, shaving off anywhere between 5% and 6% each.
Reliance Industries also had a rough ride as a disappointing first quarter effectively negated the positive impact of the the BP deal. The index heavyweight lost 5.2% at Rs 827 after reporting a 16.6% increase in net profit at Rs 5,661 crore for the June quarter. Its net profit for the corresponding previous quarter was Rs 4,851 crore. RIL had begun the week with gains of more than a percent after the government gave an unconditional approval to India's biggest private sector company to sell 30% interest in 21 blocks to British Petroleum.
Oil & Natural Gas Corporation (ONGC) declined 3.97% to Rs 268.65 as a sharp surge in the company's subsidy sharing burden restricted first quarter profit growth. Net profit rose 11.83% to Rs 4094.90 crore on 18.7% rise in sales revenue to Rs 16268 crore in Q1 June 2011 over Q1 June 2010. ONGC's subsidy burden swelled 118.4% to Rs 12046 crore in the quarter.
Bank of India shed 3% at Rs 404 after posting a 28% decline in net profit at Rs 517.5 crore for the first quarter ended June 30, 2011 as against Rs 725.1 crore for the corresponding quarter of the last fiscal.
On the other hand, the shares of leading mobile service providers soared after top mobile firm Bharti Airtel raised call tariffs in some of its telecom zones, triggering expectations that other companies will follow suit in a market that has one of the world's cheapest call rates.
Religare upgraded Bharti and smaller rival Idea Cellular to "buy" from "hold" and raised its outlook for the Indian telecoms sector to "overweight" from "neutral". RCom raced ahead by 8.5% at Rs 101 and Bharti Airtel rocketed by 6.3% at Rs 437.
Maruti soared jumped by 3.9% at Rs 1207 after reporting a strong performance in Q1. The country's largest auto maker posted a net profit of Rs 549.23 crore for the quarter ended June, 2011, an increase of Rs 465.36 crore compared to the corresponding quarter a year ago. Total income rose from Rs 8,409.62 crore to Rs 8,709.37 crore in the same period.
ITC edged higher by 0.4% at Rs 208 after reporting a 25% jump in net profit to Rs 1,333 crore.
In the midcap space, SKS Micro-finance crashed by 23.2% at Rs 409, Shoppers Stop plummeted by 15.4% at Rs 394 and Jai Corp plunged by 14.4% at Rs 100.
In the smallcap space, Kanoria Chemicals lost 25.5% at Rs 55, SE Industries lost 22.5% at Rs 169 and Ruby Mills lost 17.4% at Rs 904.
In the realty space, Unitech plunged by 13.6% at Rs 30, Indiabulls Real Estate lost 13.3% at Rs 99 and HDIL lost 8.8% at Rs 142. DB Realty, Sobha Developers and DLF lost between 4% and 6% each.
Among the rate-sensitives, the realty index nosedived by 7.3% at 2041, while banking shed 3.5% and auto lost 1.1%. Metals, power and oil sectors also took it on the chin, shedding between 4% and 5% each.
In the auto and auto-ancillaries space, Tata Motors shed 4.9% at Rs 947, Cummins lost 5.3% at Rs 639 and Bharat Forge lost 2.6% at Rs 329. Maruti, however, ended higher.
In the banking space, SBI plunged by 6.1% at Rs 2342 and HDFC Bank lost 2.7% at Rs 487. And ICICI Bank lost 2.8% at Rs 1037, albeit off its weekly lows, after posting a 30% rise in quarterly profit.
In the metals space, JSW Steel lost 10.9% at Rs 774, Jindal Steel lost 6.5% at Rs 586, Sterlite lost 5.1% at Rs 159 and Hindalco lost 4.7% at Rs 168. Sail, Tata Steel and Sesa Goa lost between 3% and 4% each.
In the oil marketing space, RIL lost 5.2% at Rs 827, and among the oil marketing companies, HPCL, BPCL and IOC lost between 1% and 4% each.
