RBI's aggressive stand

The Reserve Bank of India on Tuesday raised its repo and reverse repo rates by 50 basis points each in a bid to control mounting inflation, while lowering the economic growth projection to 8% for the current fiscal.

FIIs were taken aback to see a greater-than-expected hike in the interest rates as there were concerns that it may affect India's investment cycle. Jim Walker, managing director of Asianomics Limited, in an interview with CNBC-TV18’s Udayan Mukherjee and Mitali Mukherjee, said that a hike of 50 basis points has come like a surprise.

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Dalal Street Bulls running for cover

Bank shares were the worst hit as the RBI move to raise savings deposit rate will make funds costlier for lenders, coming at a time when already there are fears of credit growth slackening due to high interest rates.

Apart from banks, auto and realty shares also fell sharply because of their sensitivity to interest rates. The BSE sectoral indices for banks, auto and realty, tumbled over 3% each.

Market experts are worried that higher borrowing costs—resulting from an increase in interest rates—will hurt companies’ operating margins. This in turn, could lead to a downgrade in earnings estimates, and drag share prices lower.

“It is a good time to enter banking shares,”. SBI, ICICI Bank, HDFC Bank, PNB, HDFC and Axis Bank were down 2-5%.

RBI Disappoints

Equity benchmarks extended losses in the afternoon trade - the Nifty has touched the 5600 mark, reacting quite harshly to 50 basis points hike in key rates by the Reserve Bank of India.

The 30-share BSE Sensex shed 347 points, to 18,650 and the 50-share NSE Nifty tumbled 107 points to 5,594. Market breadth has widened its gap - three shares declined for every one share advanced on National Stock Exchange.

The central bank increased the repo rate (the rate at which banks borrow money from RBI) by 50 basis points to 7.25% to rein in inflation, which was almost 9% in March. It is a signal for banks to tighten interest rates.

RBI policy awaited

The benchmark Nifty was hovering around the 5700 mark amid volatility at 10:30 hours. Benchmarks were awaiting the policy announcement from central bank Reserve Bank of India.

Consensus estimates suggest that 25 basis points hike in key rates. Even some experts were expecting hike in the range of 25-50 basis points. However, experts feel that beyond 50 basis points hike in key rates (repo and reverse repo) would trigger sell-off in the market. For more details

Nifty below 5700 ahead of RBI policy meet

Indian equity benchmarks were down in the opening trade amid a choppy trade, especially ahead of Reserve Bank of India's policy meet today at around 11 am. The Nifty opened at sub 5700 level, dragged down by financial, FMCG and select auto companies' shares.

A CNBC-TV18 poll indicates that RBI is likely to raise rates by 25 basis points. But it is a deeply divided market.

RBI should definitely go in for a 50 bps hike. It will send out a very strong signal. "But don't think it is going to happen. They will probably increase rates only by 25 bps, which market may take as positive in the short-term".

Among frontliners, ONGC, ICICI Bank, HDFC Bank, M&M, Bajaj Auto, DLF, PNB, Tata Motors, ACC, Jaiprakash Associates, HDFC and SBI were pulling the markets down.

However, Hero Honda, BHEL, SAIL and Ranbaxy Labs were on buyers' radar.