Sensex in India Drops; Rate Hike Talks

Mayank Mehta, Chandrasekhar Atreya and Sanjay Barot
29 Jun, 2010
New York City

Stocks in Mumbai traded lower after a central bank official said interest rate may be revised higher to curb inflation. Weak sentiment in the region also contributed to the declines. Tata Motors plans to raise as much as $1 billion and Pantaloon Retail raised $100 million.

[R]5:00 PM Mumbai, 8:30 AM New York – Stocks in Mumbai traded lower after a central bank official said interest rate may be revised higher to curb inflation. Weak sentiment in the region also contributed to the declines. Tata Motors plans to raise as much as $1 billion and Pantaloon Retail raised $100 million.[/R]

Stocks in India declined after the central bank’s deputy governor said there may be a need to raise interest rates to contain inflation due to fuel oil price deregulation.

The Sensex index dropped 240.17 or 1.35% to 17,534.09 and CNX Nifty index fell 78.35 or 1.47% to 5,255.15. Among the Sensex 30 stocks, 30 fell.

On BSE trading, 1,042 stocks advanced, 1,780 declined and 82 were unchanged. Banking and realty stocks also fell. Reliance Industries extended initial losses.

Stocks in Mumbai traded lower on the talks of interest rate hike and market declines across Asia. China led the region with a loss of 4% after a private researcher lowered its growth outlook.

Rupee edged lower 25 paisa to Rs. 46.45 against one dollar.

Indian Prime Minister Manmohan Singh told reporters while returning from the G-20 meeting that his government will also deregulate the price of diesel shortly to reduce the subsidy.

“The fact that petrol prices have been set free, the same is going to be done to diesel prices. Subsidies for petroleum products have reached a level that is not connected to sound financial management of our economy,” Singh said while talking to the reporters.

State Bank of India, India’s largest bank set its prime lending rate at 7.5% effective July 1, the deadline date set by the regulator for banks to confirm their prime lending rate. The new law bars bankers from offering loans below the benchmark prime lending rate.

The system of using benchmark prime lending rates that started in April 2003 fell short of the regulator’s objective of bringing transparency to lending rates as banks were allowed to offer credit below the benchmark prime lending rate.

The government’s decision to deregulate the prices of fuel oil completely and diesel oil partly, will help the stake sale of Indian Oil Corp, the second-biggest refiner, said Chairman B.M. Bansal.

“The freeing of gasoline prices and an increase in cooking gas and kerosene rates will help boost the company’s cash flows and reduce debt. The market conditions for share sale will improve,” said Bansal in an interview with Bloomberg UTV yesterday.

India and Canada on Monday signed a civil nuclear cooperation agreement and resolved to ratify the accord and complete all remaining steps soon. This is the next step before Canada starts selling nuclear reactors to India.

The board of Tata Motors at its meeting held on Monday decided to seek shareholders approval to raise as much as Rs 4,700 crore through a combination of issue of ordinary shares and bonds or other equity-linked instruments in the domestic and international markets, said a company release in Mumbai today.

Gainers & Losers

AstraZeneca Pharma India Limited surged 20.0% to Rs 1,207.05 after the company said Tuesday it has received a delisting offer from 90%-owner AstraZeneca Pharmaceuticals AB, sending its shares higher.

Cummins India Limited rose 1.5% to Rs 594.75 after the global auto component maker has earmarked an investment of $300 million to set up four facilities in India, including a manufacturing unit to support future capacity requirements for its auto components and power generation businesses in the country over the next five years.

Decolight Ceramics Limited fell 0.2% to Rs 9.60 after the company secured an order of Rs 1 crore for vitrified floor tiles from Sunar Metals.

Housing Development Finance Corporation Limited fell 1.7% to Rs 2,908.00 after turning ex-dividend for a dividend of Rs 36 per share for the year ended March 2010.

Lumax Auto Technologies rose 1.8% to Rs 129 extending recent gains after the company''s board decided to issue 20 lakh equity shares on preferential basis to promoters and non-promoters via private placement.

MMTC fell 2.1% to Rs 31,849 on profit booking after the company’s board recommended a 10-for-1 stock-split and a 1-to-1 bonus issue.

Natco Pharma Limited added 2.8% to Rs 201.40 after the company launched generic version of Anastrazole tablets in the US.

Pantaloon Retail (India) Limited fell 2.3% to Rs 412.70 after the company said it would raise Rs 400 crore by issuing one crore convertible warrants to a promoter firm at Rs 400 each.

State Bank of India fell 0.6% to Rs 2,287.90 after the bank said it has fixed the base rate at 7.5% per annum with effect from July 1.

Supreme Industries rose 2.1% to Rs 571 after the company said its board will meet on July 16 to consider stock-split.

Tata Sponge Iron Limited dropped 2.7% to Rs 335.40 after turning ex-dividend for a dividend of Rs 8 per share for the year ended March 2010.

Tata Motors Limited fell 1.6% to Rs 774.60 after the company''s board approved raising about Rs 4,700 crore through equity and convertible bonds to reduce debt and for expansion.

TVS Motor Company Limited gained 6.0% to Rs 113.35 after the company is expecting to double its revenue from scooter sales in the current fiscal on the back of its newly launched vehicle `Wego'' and robust market growth, a company official said.