Equity Slipped In Opening Trade

Equity slipped further in opening trade on Wednesday, with the Nifty beginning the trade below 5550 level. Auto, cement, private banking and technology companies' shares were seeing further correction. Weak Asian cues too weighted on Indian equities.

Some negative sentiment of 50 basis points hike in key rates by RBI yesterday and increased in savings bank rate to 4% from 3.5% is still weighed on the market. Especially rate sensitives were taking beating.

Among frontliners, Bajaj Auto, M&;M, Hero Honda, Maruti Suzuki, ICICI Bank, PNB, Axis Bank, HDFC Bank, Reliance Capital, Infosys, TCS, HCL Tech, Jaiprakash Associates, Hindalco, Sesa Goa, Sterlite Industries and ACC were pulling the markets down.

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