Inflation worries spook mkts; Nifty ends below 5700
Rising inflation concerns and likely slow down in economic growth spooked Indian equities on Tuesday and sent the Nifty below the 5700-mark at close, dragged down especially by financials, which sensed that there will be rate hikes in next policy meet.
January 25, 2011 / 19:20 IST
Rising inflation concerns and a likely slowdown in economic growth spooked Indian equities on Tuesday and sent the Nifty below the 5700-mark at close, dragged down especially by financials, which sensed that there will be rate hikes in next policy meet as well.
Traded turnover was far higher than the average turnover seen in last few sessions, mainly ahead of derivates contracts expiry on Thursday. Total traded turnover reported by exchanges were at Rs 2,22,692.3 crore, including Rs 2,06,028.02 crore from the F&O segment suggesting that a lot of shorts were triggered in rate sensitives - particularly in private banks mainly ahead of expiry.The Reserve Bank of India upped the repo--the rate at which it lends to banks -- and reverse repo--the rate at which it borrows from banks--rates by 25 bps each to 6.5% & 5.5%, respectively. That was completely in-line with street expectations. But the central bank warned that there would likely be a further hike in key rates in its next policy, when it revised its inflation forecast to 7% versus the 5.5% it had projected in its November 2 quarterly meet. The central bank too expects GDP growth rate may decline in FY12, which triggered more sell-off today.Inflation is likely to be a global concern in 2011 and emerging markets are facing significant inflationary pressures, says RBI Governor D Subbarao. "We have seen signs of food inflation spilling over to non food side." He said, "Inflation expected to moderate from 1st quarter of 2012."Market experts were expecting that beyond 25 basis points, RBI would hike maximum 50 bps and not more. Even Subbarao said, "We did contemplate 50 bps hike in today's policy. The challenge is to restrain demand side inflationary pressure and support supply side effects."Not surprised with RBI trying to balance out managing inflation cost primarily by supply side factors and at the same time ensuring that interest rates while moving higher do not completely derail growth, Sonal Varma, India Economist, Nomura Financial Advisory & Securities (India) said the approach of 25 bps seems like a prudent approach.Experts and bankers too agreed that there would be rate hike in forthcoming RBI meet and that is likely to continue in 2011. "Going forward we expect RBI to continue tightening monetary policy given the sustained high inflationary pressures due to high food and international commodity prices, even as growth remains reasonably strong. We expect a 25bps hike in the March policy meeting and a cumulative 100bps hike in policy rates in calendar year 2011," said Ashutosh Datar economist at IIFL.Religare Capital Markets too said, "Today
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