Hefty rate rise spooks markets

Investors dumped interest rate-sensitive stocks on Tuesday after the Reserve Bank of India (RBI) increased its key policy rates and the savings bank rate by 50 basis points each to tame inflation.

On the Bombay Stock Exchange (BSE), the auto, bankex and realty indices were major losers. The BSE Auto index lost 3.74 per cent, the Bankex index slipped 3.11 per cent and BSE Realty declined 2.91 per cent. In comparison, the exchange’s benchmark, the Sensex, fell 2.44 per cent, or 463.33 points, to 18,534.69. All other sectoral indices on the BSE also ended in the red. At the National Stock Exchange (NSE), the 50-stock Nifty index gave up 2.39 per cent, or 136.05 points, to close at 5,565.25.

Foreign institutional investors (FIIs) were heavy sellers. Provisional data on the BSE website showed they, overall, sold shares worth Rs 1,178.7 crore today. On the other hand, domestic institutional investors (DIIs) bought shares, overall, worth Rs 606.8 crore.
 

THE FALL
Top 10 Sensex losers
	May 3, ’11	%chg*
JP Associates	85.05	-8.05
Tata Motors	1163.45	-5.30
Bajaj Auto	1366.95	-5.02
Mah & Mah	707.85	-4.47
L&T	1537.50	-4.17
SBI	2583.10	-4.03
Hindalco	206.50	-3.23
HUL	272.30	-3.15
ONGC	295.25	-2.99
ICICI Bank	1067.90	-2.76
BSE sectoral indices
	May 3, ’11	%chg*
Auto	9108.98	-3.74
Bankex	12406.67	-3.11
Realty	2140.90	-2.91
Cons Durable	6114.15	-2.65
Cap Goods	12720.55	-2.51
Sensex	18534.69	-2.44
S&P CNX Nifty	5565.25	-2.39
* change over previous Data compiled by BS Research Bureau

Since April 25, FIIs had net-sold shares worth Rs 2,348 crore in the Indian market till yesterday, the Securities and Exchange Board of India (Sebi) data showed. Except Bharat Heavy Electricals Ltd, all other shares in the 30-stock Sensex suffered losses. Jaiprakash Associates (down 8.05 per cent to Rs 85.05), Tata Motors (down 5.3 per cent to Rs 1,163.45), Bajaj Auto (down 5.02 per cent to Rs 1,366.95) and Mahindra & Mahindra (down 4.47 per cent to Rs 707.85) were the major losers.

‘Most market participants were expecting a 25-bps hike in policy rates. So, a 50-bps increase has come as a surprise. Also, the increase in savings banks rate will have some impact on the net interest margins of banks,” said Devang Mehta, vice-president and head–equity sales at Anand Rathi Financial Services. “The central bank’s growth and inflation projections for the current financial year have also worried investors.”

For 2011-12, the RBI has pegged gross domestic product (GDP) growth at eight per cent and sees March-end inflation at six per cent.

Experts believe the correction has been sharp in the past few sessions and the Nifty should consolidate in a range of 5,400-5,700 in the short term.