Rate sensitives extend losses as probability of rate cuts fade

Rate sensitive shares extended losses on Monday on rising worries that the central bank remains hawkish on inflation and the probability of rates coming down is low. .

Rate sensitive shares extended losses on Monday after the repo rate hike and on rising worries that the central bank's hawkish stance on inflation signal the probability of rates coming down are low.

The central bank surprisingly hiked the repo rate by 25 basis points to 7.50%. Further, the central bank also announced sharp cut in MSF (Marginal Standing Facility) rate by 75 basis points to 9.5%

The new Reserve Bank of India chief Raghuram Rajan announced his first monetary policy statement on Friday said that high inflation is a cause for concern.

"The concerns over inflation raised by the central bank could result in rate hikes instead of rate cuts is weighing on market sentiment. Rate sensitives were down today because of the increase in repo rate on Friday," said Alex Mathew, Head of Research at Geojit BNP Paribas Financial Services.

Banks were the most hit as cost of borrowing would increase thereby hurting margins in the short term.

In the financial space, ICICI Bank, HDFC Bank, SBI, Axis Bank, IndusInd Bank, Kotak Mahindra Bank and Bank of Baroda ended down 4-7% each.

Stocks in the realty sector also took a hit as high interest rates would hurt borrowers such as realty developers and inventories would further rise as costlier home loans would result in consumers delaying purchases.

Although valuations are seen compelling at current levels, market analysts say that even at these levels they would not advice entry into these stocks as inventory levels continue to build-up and further growth is a cause for concern.

DLF, Godrej Properties, Unitech, Anant Raj, HDIL, Indiabulls RealEstate, Prestige Estates down 1-6.5% each.

Capital Goods shares were also among those hit as high cost of borrowing could result in lower margins and while concerns over fresh orders continue to weigh on the sector. L&T, BHEL, ABB, Siemens, Crompton Greaves all ended down 1-4% each.