Rate sensitives pull Sensex down 156 pts ahead of RBI meet
Indian equity benchmarks witnessed selling pressure in the last couple of hours of Friday trade. The Sensex shed more than 200 points in intra-day trade ahead of policy meet on Tuesday next week.
April 29, 2011 / 18:52 IST
Indian equity benchmarks witnessed selling pressure in the last couple of hours of Friday trade. The Sensex shed more than 200 points in intra-day trade ahead of policy meet on Tuesday next week. (Here's what RBI might do in the policy)
Despite high inflation figures that make this policy meet very crucial, Reserve Bank of India (RBI) governor Duvvuri Subbarao is expected to continue with his calibrated approach in hiking policy rates by 25 basis points only.Experts too believe the 25 basis points hike in key rates but 50 bps hike will turn the sentiment negative.Deven Choksey, MD, KR Choksey Shares and Securities said, "The monetary policy to a certain extent is a known element for the market. As long as the 25 bps rate effect is coming in, the market has discounted monetary policy. However, if the rate increase is 50 bps then the market may look little negative."Going with the street consensus of a 25 bps hike each in repo and reverse repo rates, most banks are bracing up for another round of lending rate hikes post the RBI policy announcement. "Interest rates are near the peak. If RBI hikes policy rates (repo and reverse repo), we would also pass it on our borrowers," said S Raman, CMD, Canara Bank. He expects the RBI to hike both by 1% each in FY 2011-12. Raman, however, sees a limited scope of deposit rate hike as we are already ahead of the curve. Repo is the rate (6.75%) at which banks borrow money from RBI. Reverse repo is the rate (5.75%) at which banks lend to RBI. Meanwhile, bankers do not foresee any change in the rates of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).Rate sensitives took beating ahead of that event. The BSE Bank, Realty and Capital Goods indices were down nearly 2-3%. The banking sector as a whole, Sudip Bandyopadhyay, President, Destimoney Securities said, "We are very worried because of the recent RBI pronouncements regarding savings rate deregulation. This is one area which will change the entire cost structure in the banks. They were heavily dependent on CASA which was very low cost for them. Once the saving rate deregulation comes, that entire dynamics will change and that will have a significant impact on the entire banking space."SBI, HDFC, HDFC Bank, IDFC, PNB and Kotak Mahindra Bank were down 1.5-2.5%. Axis Bank tumbled 3.5% while ICICI Bank was down just 0.3%. Fears like rise in interest cost too hammered some stocks. L&T plunged nearly 4% and Jaiprakash Associates fell 3%. DLF from realty space was down over 2%.The 50-share NSE Nifty dropped 35.95 points or 0.62% to close at 5,749.50 and the 30-share BSE Sensex fell 156.06 points or 0.81%, to settle at 19,135.96. Indices were consolidated in the first half of trade today on first day of May series. They had been in a consolidation mode in last five sessions as well. For the week, the Sensex and Nifty were down more than 2.3% and for a month, they fell over 1.4%.Rahul Mohindar of viratechindia.com says, now lot of traders are eyeing for 5700 level on Nifty. "It remains to be seen whether we break 5700. But the way things are stacked up on the index heavyweights I don
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