Sensex dives 200 pts, IT stops deeper cut; YES Bk tanks 13%

Moneycontrol Bureau

Bank stocks plunged Wednesday on RBI's latest money tightening measure, pulling down equity benchmarks by nearly 1 percent. However, both Sensex and Nifty managed to trim losses towards the close of session, helped by purchases in select IT and healthcare stocks.

The Sensex closed at 20090.68, down 211.45 points over the previous close after touching a low of 19994.25 intra-day. The Nifty shed 87.30 points to close at 5990.50, after seeing a low of 5962.60.

The RBI on Tuesday further reduced availability of short term funds to banks, driving up interest rates in the process. While the RBI is attempting to support the rupee through this strategy, market experts are worried that high interest rates could stifle economic growth.

Worst hit among banks were those relying on wholesale funding of their loan book.

Yes Bank was the top loser, falling nearly 13 percent. Others like IndusInd Bank, Kotak Mahindra, Canara Bank, Federal Bank, Bank of India and Bank of Baroda fell 6-8 percent.

"Wholesale funded banks(Yes, Indus, Kotak) and NBFCs are going to be worst impacted," brokerage house Credit Suisse said in its report.

"Apart from the impact on funding cost and margins, growth for these banks is now likely to be much lower than the earlier growth trajectory. Asset quality risk also goes up a notch especially for PSU banks, as tightening of liquidity could precipitate the asset quality problems," the note said.

Big loses among NBFCs included IDFC, M&M Financial and India Infoline, which fell 6-9 percent.
 
Among the handful of gainers in the Sensex, Bharti Airtel, Wipro, Sun Pharma, TCS, Cipla, and Bajaj Auto gained around 2 percent. ITC, Infosys and Coal India closed flat. 
 
Key equity benchmarks have been relatively resilient to the upheaval in the currency and bond markets in the last couple of weeks. But brokers say topline indices give a misleading picture since a handful of stocks are holding them up.

Midcaps and small caps have been steadily losing ground, more in the absence of any buying interest than heavy selling. The BSE Midcap today fell about 2 percent, twice as much as the Sensex.

Further undermining sentiment is a perception in the market that even the authorities are not sure of their strategies to resolve the rupee crisis.

"My suggestion to govt-If you want to defend the INR-don't rush to TV studios calling RBI measures temporary-it defeats the purpose," fund manager Vetri Subramaniam tweeted.

And then there is the debate whether hiking interest to defend the rupee is a good idea.

"We continue to believe that the RBI will have to recoup FX reserves-rather than
hike rates, to restore confidence in the INR (rupee)," said a note by brokerage house Bank of America Merrill Lynch, adding that issuing dollar-denominated bonds to overseas Indians was the best option before the RBI to boost its forex reserves.

On Monday, RBI announced what was initially thought of as further curbs on gold imports. But turns out that the new set of rules are a reversal of the stringent curbs on gold imports imposed last week.

"Compared to banning the consignment route (which has now been reversed) the measures are likely to be negative for the Current Account Deficit as they reduce funding challenges for domestic jewelers. This makes the arithmetic a bit tricky and actual imports will depend on checks and balances on reporting of gold exports,” brokerage house Kotak Securities said in its report today.