Sensex dips 353 pts on RBI aggression

Stock markets fell sharply on Tuesday as the Reserve Bank of India (RBI) raised key interest rates by 50 basis points (bps). The street expectation was of 25 bps. The BSE Sensex fell 353 points, or 1.87 per cent, to close at 18,518. The broader index Nifty of the National Stock Exchange (NSE) was down 105, or 1.86 per cent, to close at 5,574.

RBI raised the repo rate to eight per cent from 7.5 per cent and reverse repo rate to seven per cent from 6.5 per cent. Also, poor quarterly results of Bharat Heavy Electrical Ltd’s (BHEL) , released on Tuesday, proved a dampener for other capital goods stocks. The company’s net profit rose only 22.15 per cent in the June quarter.

Reliance Communications fell 5.53 per cent on Tuesday after yesterday’s 14 per cent rally.

Market players, however, said on Tuesday’s stock price fall was a mere knee-jerk reaction as the rate rise was steeper. Brokers said equity prices would not react any further to on Tuesday’s RBI policy. All eyes were set on the monsoon session of Parliament in August.

TUMBLE DOWN
	26-Jul-11	% Chg*
Sensex	18518.22	-1.87
Nifty	5574.85	-1.86
BSE SECTORAL INDICES
Realty	2144.18	-3.55
Cap. Goods	13395.69	-3.49
Bankex	12694.05	-2.46
Auto	8789.78	-2.14
Power	2539.41	-1.88
TOP 5 LOSERS (BSE 100)
IDFC	134.85	-5.90
Reliance Comm	101.55	-5.53
Power Finance	201.70	-4.63
BHEL	1908.80	-4.46
Kotak Mahindra Bank	466.00	-4.26
DLF	233.60	-4.26
*Over previous close Data compiled by BS Research Bureau

“Large investors and traders are bothered about the macro government policies and the political scenario. The breaking of multi-crore scams every week is a major growth hurdle. People are desperately waiting for bills and policies to be passed in the monsoon session,” said Sudip Bandyopadhyay, managing director and chief executive officer of Destimoney Securities. Bandyopadhyay said even though growth would be pushed to a corner in the short term, there would not be much worry on the street in the near term, as a pause in rate rise is anticipated now.

According to provisional figures, foreign institutional investors net sold shares worth Rs 177 crore. Domestic funds were net buyers of Rs 31 crore worth equity on Tuesday. Last time, when RBI raised rates by 50 basis points in May, the Sensex and Nifty benchmark indices fell two per cent each and the fall was extended for another two trading sessions.

“RBI has given a very clear indication that they want to go the whole hog to respond to inflation. Also, any downgrade on the US debt next month could have a global impact, which is what RBI has kept in mind,” said Nirmal Jain, chairman of Mumbai-based IIFL.