With the Reserve Bank of India (RBI) dashing hopes of an interest rate cut, stock market indices took a knock on Monday. Rate sensitives such as bank and real estate indices were hit the most, falling 3.2 per cent and 2.8 per cent.
The euphoria over the Greek election results was short-lived. The Bombay Stock Exchange Sensitive Index, or Sensex, rose almost 150 points in the first couple of hours of the trading session, hitting a six-week high. But after the policy announcement, it fell sharply. The Sensex closed down by 1.4 per cent or 244 points, at 16,705. The broader Nifty index of the National Stock Exchange fell 1.5 per cent or 74 points to 5,064. It was the biggest fall for both indices since June 1. During the day, the Sensex had a roller-coaster ride of 400 points.
Even the European markets, which opened strongly due to the Greek results, gave up the early gains after the Bank of Spain’s data showed the bad loans of Spanish banks were up 8.7 per cent – the highest since April 1994.
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|BSE SECTORAL INDICES
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Data compiled by BS Research Bureau
Back home, banking stocks suffered badly. The share price of the country's largest bank, State Bank of India, fell 4.4 per cent to close at Rs 2,087. ICICI Bank, the largest private sector one, was down 3.3 per cent at Rs 816. HDFC Bank fell 2.7 per cent at Rs 533. Among other stocks, HDFC was down 4.6 per cent at Rs 187.
Provisional figures from the BSE showed foreign institutional investors were net buyers to the tune of Rs 412 crore. Domestic funds sold stocks worth Rs 63 crore.
According to C J George, managing director at Geojit BNP Paribas, the flows in the market will be determined by events such as the US Federal Reserve meeting and the Europe outlook. “The domestic market will remain sideways till the rupee improves against the dollar,” said George.
“The focus would now shift to what reforms the government initiates after the Presidential polls next month. Markets are expecting foreign direct investment in aviation and other infrastructure related projects to start. This will be the next trigger and we hope it happens before Standard & Poor’s comes out with another rating report in three to six months,” said Kishor Ostwal, managing director of CNI Global Research.
The flow of bad news continued after market hours. Fitch Ratings cut India's sovereign outlook to 'negative' from 'stable', saying growth potential would "deteriorate" unless the country implemented structural reforms, and citing "limited progress" on fiscal consolidation.
According to experts, stock prices in India might see further erosion if the global risk environment worsened. It was a narrow victory for pro-bailout parties in Greece, which had a muted impact on stock markets in Europe today as well. Also, the worries over Spanish and Italian debt problems persist. The Federal Reserve meeting will end on Wednesday and global investors will watch if it takes any action to boost the US economy.