Sensex slips nearly 300pts on rate hike

After a opening on a flat note, the markets have slipped nearly 300 points post the RBI policy - as the Central Bank raised the repo and reverse repo rate by 50 bps, which is 25 bps higher than what the Street had expected. As a knee jerk reaction, all the rate sensitive indices too lost ground and were down over 2% each.

The BSE benchmark index touched a low of 18,569, and is now down 256 points at 18,613. The Nifty has shed 80 points at 5,600.

In the broader markets, the midcap index lost 0.8% and the smallcap index gave away 0.6%, outperforming the Sensex which is down 1.5%.

All the sectoral indices have slipped into the negative with Consumer Durables and Health Care being the least affected, losing 0.5% each. The draggers in the realty space are DLF, Orbit Corporation and Unitech down nearly 3% each. In the banking space, Bank of India, Punjab National Bank, Kotak Mahindra Bank and ICICI Bank are down 3-4% each.

Meanwhile, the auto index has limited its losses, down 1.6%. Apollo Tyres, Mahindra & Mahindra, Ashok Leyland and Tata Motors down 2% each are the major losers in this space.

The market breadth is very negative. Of the total 2,646 stocks traded on the BSE, 1,675 stocks have declined while 858 have advanced on the BSE.

RBI Governor Speak

Addressing a press conference, RBI Governor D Subbarao said that moderation in demand is necessary to bring down inflaiton and that the US debt standoff will add risks to the global capital flows. He also said that the subsidy burden may overshoot the budgeted amount this year.

Despite economy showing signs of cooling down, June Wholesale price inflation (WPI) rose to an annual 9.44% from 9.06% in May, driven by higher prices for fuel and manufactured goods. Inflation for the next few months still to remain a challenge.

FY12 GDP growth forecast was kept unchanged at 8%. The RBI stated that the FY12 fiscal deficit target is a challenge and that this move has been taken to control inflation which is imperative to sustain growth.