Sensex Drops 1%, RBI Lifts Rates and Views on Inflation

Devan Biswas
17 Mar, 2011
New York City

Stocks in Mumbai edged lower after the Reserve Bank of India hiked rates by 0.25% as expected but lifted the current fiscal year inflation estimate to 8% from 7%. Rate sensitive automakers, banks and real estate developers led the decliners.

[R]4:30 PM Mumbai – Stocks in Mumbai edged lower after the Reserve Bank of India hiked rates by 0.25% as expected but lifted the current fiscal year inflation estimate to 8% from 7%. Rate sensitive automakers, banks and real estate developers led the decliners.[/R]

Stocks in Mumbai trading declined after the Reserve Bank of India increased its borrowing and lending rate 25 basis points.

The latest rate increase may be followed by more hikes as the central bank lifted its inflation estimate to 8% fro 7% for the year ending in March.

The central bank also noted that non-food lending growth has declined since the end of last year but still ahead of 20% target.

The eighth hike in interest rate in the last one year has failed to make a significant dent in inflation and prices are expected to stay elevated in the near term. The supply constraints and food price increase in addition to the latest international oil price gains are likely to keep inflation above the central bank target between 5% and 6%.

The Sensex index declined 1.15% or 208.82 to 18,149.87 and the Nifty index declined 64.50 or 1.13% to 5,446.65. Of the 30 stocks in the Sensex index, 22 fell and the rest closed higher.

On the BSE, 1,652 stocks closed lower and 1,231 gained a total of 116 closed unchanged.

The rupee edged lower to 46.04 against a dollar and the price of gold for ten grams closed down Rs 34 to Rs 21,118.00.

The RBI lifted its borrowing or reverse repo rate to 5.75% and lending or repo rate to 6.75%. The central bank left the cash reserve ratio at 6% and statutory liquidity ratio at 24%.

The wholesale price index in India unchanged to 186.1. For the year to the week calculated on point-to-point basis inflation decreased to 12.31% compared to 13.96% for the previous week.

Stock Movers

The rate sensitive stocks fell after the latest hike in interest rates. Auto makers, real estate developers and banks were among the leading decliners.

Maruti Suzuki India Ltd fell 4.1% to Rs 1,173 on the worries that rolling blackouts in Japan are likely to hamper parts supplies. Most exporters in Japan are bracing for at least one month of production closure.

Also, Japanese yen surged to a record intra-day high of 76.30 to a dollar.

State Bank of India declined 0.7% and ICICI Bank fell 1.4%. HDFC Bank dropped 0.08%.

Reliance Industries Limited declined 1.2% to Rs 1,031.95.

Metals and mining stocks declined. Hindalco decreased 2.2%, Sesa Goa fell 1.5%, Tata Steel declined 0.5% and Jindal Steel & Power dropped 1.4%.

Reliance Communications increased 3.2% to Rs 106.30 and the company said it has accessed Rs 3,000 crore of the Rs 8,700 crore credit facility underwritten by China Development Bank.

Jyothi Laboratories increased as much as 9% to Rs 252 after the company said it acquired 14.9% stake in Henkel India at Rs 35 a share or Rs 60.73 crore from Tamil Nadu Petro.