Mumbai: Hit hard by higher-than-expected hike in RBI rates, the BSE Sensex tumbled 353 points to 18,518 - biggest fall in five weeks - as investors sold across the board, especially realty, auto and banking segments that are impacted the most by the high interest regime.
In its first quarter review of the monetary policy for 2011-12, RBI hiked lending (repo) and borrowing (reverse repo) rates by 50 basis points, as against widely expected 25 bps.
The RBI move signalled continuation of the high interest rate regime to combat inflation by making loans costlier for business as well as consumers. It will hit corporate margins and curb demand, analysts said.
The Reserve Bank also revised its fiscal-end inflation projection to 7 per cent from 6 per cent earlier, making investors jittery, they added. In June it was 9.44 per cent.
The Bombay Stock Exchange 30-share barometer initially touched a high of 18,944.60 and traded in a narrow range. As RBI hiked the rates, it started falling and settled at 18,518.22, down 353.07 points or 1.87 per cent. In last two sessions, it had gained over 435 points or 2.36 per cent.
"The RBI policy turned out to be a huge dampener for the market sentiment. Corporates were already ruing the high cost of funds, resulting in their margin squeeze." said Shanu Goel Senior Research Analyst at Bonanza Portfolio.
Motilal Oswal Securities Associate VP Parag Doctor said, "RBI unexpectedly hiked interest rate by 50 bps as against market expectation of 25 bps. Most of the interest sensitive sectors like banking, auto, realty and infrastructure stocks witnessed sharp declines."
Besides the rate hike, offloading long positions ahead of the expiry of July derivative contracts on Thursday aggravated the situation.
The broader National Stock Exchange 50-issue Nifty dipped 105.45 points or 1.86 per cent to 5,574.85 - below the psychological 5,600 level.
CNI Research CMD Kishor P Ostwal said, "A steep hike in key interest rate, which was above market expectations, that too ahead of the expiry of July series on Thursday, compelled operators and speculators to offload their long positions."
Sell-off was so strong that all sectoral indices closed with losses of between 3.55 per cent and 0.10 per cent and 29 out of 30 Sensex-based scrips finished in the red while only TCS ended in the green.
The BSE-Realty index plunged by 3.55 per cent, Capital Goods (3.49 pc), Bankex (2.46 pc) and Auto (2.14 pc).
Downslide in L&T, ICICI Bank, ITC, SBI, RIL, and HDFC together contributed about 200 points to the Sensex fall.
Globally, although Asian markets ended in the green, European stocks displayed a feeble trend, impacting negatively on the market sentiment.
Asian markets ended in the positive terrain. Key indices from China, Hong Kong, Japan, Singapore, South Korea and Taiwan gained between 0.47 per cent and 1.28 per cent, while European stocks were quoting lower at mid-session.
RComm was the top loser from the Sensex pack with a fall of 5.53 per cent followed by BHEL (4.46 pc), DLF (4.26 pc), M&M (4.20 pc), L&T (3.84 pc), ICICI Bank (3.13 pc), Tata Motors (3.06 pc), SBI (2.86 pc), Sterlite Ind (2.46 pc), ITC (2.14 pc), Jaipra Asso (2.09 pc), Bharti Airtel (2.04 pc), HDFC (1.82 pc), HDFC Bank (1.44 pc), HUL (1.25 pc), RIL (1.25 pc) and Tata Steel (1.22 pc).
The total market breadth at BSE turned negative as 1,887 counters ended with losses, while 1,000 finished with gains. The turnover declined further to Rs 2,899.08 crore from Rs 2,972.68 crore on Monday.
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