Sensex Plummets 5% as RBI Hikes Rates

Ivaylo
02 Apr, 2007
New York City

The benchmark index opened with a negative bias of more than 260 points and drifted lower throughout the session on heavy selling across all sectors. Banking, auto, construction, steel, and real estate stocks were the worst hit. All the index stocks finished in the negative territory. Maruti and Tata Motors led the decliners. Sugar shares, though, managed to advance. Reserve Bank of India raised its short-term lending rate, the repo rate, by 25 basis points to 7.75%.

[R]8:30AM NY-7:30PM Mumbai Sensex down over 600 points on sell-off in banking stocks[/R]
The Sensex on BSE finished 616.73 points, or 4.72%, lower to 12,455.37. The market-breadth was very weak as there were more than two decliners for each gainer. As 1,771 stocks declined, 702 stocks advanced and only 73 remained unchanged. Of the 30 stocks in the Sensex, there were no gainers, as all 30 stocks declined. The turnover on BSE was Rs 2,910.51 crore, lower than Rs 3,011.09 on Friday. The turnover on NSE was Rs 6,866.85 crore, compared with Rs 7,517.79 crore on Friday.

Economic news

A surprise rise in the repo rate and the cash reserve ratio announced by Reserve Bank of India after trading hours on Friday surprised the market. The RBI hiked its short-term lending rate, the repo rate, by 25 basis points to 7.75%. The central bank also lifted the cash reserve ratio by half a percentage point. The CRR will rise to 6.50% in two tranches, the first on 14 April 2007 and the other on 28 April 2007, and will drain Rs 15,500 crore from the banking system.

Trading highlights

Reliance was the most-active stock with a turnover of Rs 164 crore followed by Indiabulls Real Estate and Infosys.

Decliners

Maruti and Tata Motors led the decliners, plunging 8% each to Rs 753 and Rs 669, respectively. Hero Honda slumped over 7% to Rs 635, and Bajaj Auto shed 5% to Rs 2,301. Interest rate sensitive auto stocks were hit on concerns that an increase in lending rates will hurt demand. Adding to the problems of auto shares, were weak March 2007 sales report by Bajaj Auto, Hero Honda and TVS Motors .

SBI tumbled over 6% to Rs 930. ICICI Bank dropped nearly 6% to Rs 805, and HDFC Bank declined 5% to Rs 902. ICICI Bank raised the benchmark-lending rate by 100 basis points to 15.75%, coming into effect from April 1 2007. It also hiked its floating reference rate for consumer loans, including home loans, by 100 basis points to 12.75%, with immediate effect.

Interest rate hike also caused a realty stocks to dip Indiabulls Real Estate, Parsvnath Developers, Sobha Developers, Anant Raj Industries, Unitech, and Mahindra Gesco Developers were the decliners for today.

Wipro declined over 7% to Rs 518. Larsen & Tourbo and HDFC were down nearly 6% each at Rs 1,525 and Rs 1,433, respectively. Satyam shed 5% to Rs 446, and BHEL lost 4.7% to Rs 2,154.

Reliance Industries declined 4.01% to Rs 1,313.50, despite signing an agreement for transporting natural gas with Gujarat State Petronet from Bhadbhut in Bharuch to Reliance’s refinery in Jamnagar, Gujarat.

[R]6:30AM European market gained on Monday on M&A activities.[/R]
European markets were higher on Monday. By mid morning, Frankfurt Xetra Dax was 0.2% higher at 6,933.3, the CAC 40 in Paris added 0.1% to 5,641.31 and London FTSE 100 gained 0.3% to 6,328.7. National benchmarks rose in 11 of the 17 markets in western Europe that were open.

Advancers

Telecom Italia rose 11.2 % as the prospect of a bid war for the telecom group parent company Olimpia increased after interest from AT&T of the US and Mexico America Movil.

Pirelli, the Italian company which owns 80% of Olimpia, announced it was in talks with AT&T and America Movil, who are jointly bidding for a third each of Pirelli controlling stake in TI.

The news excited the rest of the sector, lifting Dutch peer KPN 4.1%. France Telecom climbed 2.8 %, while Britain BT Group added 2.1% and Germany Deutsche Telekom rose 2.7%.

Merger speculation keeps driving shares in DaimlerChrysler as the German carmaker was imminently expected to announce the sale of its US Chrysler unit. Weekend press reports suggested the division may fetch between 6 eurosbillion to 9 billion euros, driving DaimlerChrysler shares 1.4% higher.

Decliners

U.K. mortgage bank Northern Rock lost 0.4% after performing strongly since the middle of March. The company stated that it continues to trade strongly in the first quarter of 2007, putting it on track to meet its asset and profit growth strategy targets. Siemens declined 0.2%, while Nokia dipped 0.9%. Alcatel-Lucent shares were down 0.1% in Paris, while Ericsson shares declined 0.8% in Sweden.

Currrencies

The dollar was down against most other major currencies in European trading Monday. The euro traded at $1.3350, up from $1.3305 late Friday. The British pound traded at $1.9726, up from $1.9593. The dollar fetched 117.78 Japanese yen, down from 118.27.