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Sensex trips on rate hike, banks lead fall

23 Mar 10 02:41 PM
ET
The Bombay Stock Exchange (BSE) Sensitive Index snapped a four-day winning streak and dropped nearly 1% on Monday, weighed down by the central bank’s surprise rate hike late on Friday, with financials leading the decline.

The Reserve Bank of India (RBI) raised its short-term borrowing and lending rates by 25 basis points each, citing intensifying inflationary pressures and a steady economic recovery. “The (interest) rate hike was expected. It is just that it came a few days in advance,” said Rajen Shah, chief investment officer at Angel Broking.

The 30-share BSE Sensex closed 0.95%, or 167.66 points, lower at 17,410.57, after falling as much as 1.4% in early trade. “I don’t think the rate hike action should be seen as a negative for the market,” said Sandip Sabharwal, CEO portfolio management services, Prabhudas Lilladher. “The market was technically overbought and it just needed a reason to correct,” he added, pointing to the recent steep rise in the benchmark. Sensex had registered its sixth straight weekly gain last week, which was its longest streak of weekly gains since June 2009.

State Bank of India and ICICI Bank fell 0.9% and 2% respectively, while HDFC shed 2.5%. HDFC Bank bucked the trend, and climbed 1.1% to Rs 1,838.45. “HDFC Bank is the best sector stock in a rising interest rate environment, as they have low asset-liability mismatch, and a higher CASA (current account to savings account) ratio,” said Vaibhav Agrawal, V-P research, Angel Securities. “Also, they do not hold many long-dated government securities in their portfolio,” he added.

Reliance Industries dropped after rising more than 2% in two previous sessions. The stock closed 1.5% lower at Rs 1,073.90.

RBI’s rate hike move also dragged down other rate-sensitives such as auto makers and real estate companies. Tata Motors and Maruti Suzuki dropped 3% and 2.2% respectively, while Mahindra and Mahindra declined 2.3%. DLF closed 3.6% lower.

Bharti Airtel rose as much as 2.4% after the top mobile operator said on Sunday it had tied up the entire funding for $8.3 billion for its planned buy of Zain’s African assets. The stock closed 1.4% higher at Rs 316.30. World stocks slipped on renewed investor concerns over Greece’s debt crisis and the RBI interest rate hike. The 50-share NSE Nifty closed 1.1% lower at 5,205.20.