Markets drop as RBI hikes rates

Markets shot up for a short while as the Reserve Bank of India announced a 25 bps hike in its key policy review. However, the Sensex erased its gains soon after and is now flat at 16,954. Nifty is at 5,104 - up six points.

The Reserve Bank of India (RBI) today raised repo rate, the rate at which it lends to banks, by 25 basis points to 8.5%. However, the cash reserve ratio remains unchanged at 6% and reverse repo rate too is unchanged at 7.5%. RBI has brought down the GDP forecast from 8% to 7.6%, while retaining the inflation forecast of 7%.

The central bank has also deregulated the bank deposit (savings) rates with immediate effect, subject to certain conditions. Banks can now decide the saving rates subject to certain regulations.

BSE bankex has slipped on the news of saving rates deregulations. The index is down 2% to 10,818.

HDFC Bank is the top loser among banking shares and has dropped 4% to Rs 464. Bank of Baroda, Axis Bank, Punjab National Bank and State Bank of India have dropped 2-3% each. Index heavyweight ICICI Bank has slipped 1.4% to Rs 857.

Other interest rate sensitive sectors have also dropped with the realty and auto indices down 0.6% and 0.1% respectively.

Among Sensex stocks, BHEL has slipped 1% to Rs 315. Coal India, HDFC, DLF and ONGC are down in trades as well. Meanwhile, IT shares have held on to gains. Infosys has advanced 2% to Rs 2,826. Larsen & Toubro has finally recovered from its losses and has gained 1.6% to Rs 1,315. Sterlite, Sun Pharma, Hindalco, Maruti Suzuki and Bharti Airtel have moved up 1-2% each.

In other stocks, VIP Industries has plunged 6% to Rs 840 after reporting 13% year-on-year (y-o-y) drop in net profit at Rs 10.90 crore for the quarter ended September 2011, compared with Rs 12.60 crore in the corresponding quarter of previous fiscal. However, net sales grew 16% to Rs 174 crore on y-o-y basis.

Container Corporation's net profit dipped 15% to Rs 175 cr for the quarter ended September 2011. It was Rs 206 crore in the same quarter a year ago. The stock is down 1.4% at Rs 970.

BSE market breadth is fairly negative. Out of 2,361 shares traded, 1,378 shares have declined while 877 shares have advanced.