RBI Lowers CRR; Sensex Falls 6%

123jump.com Staff
15 Oct, 2008
New York City

Reserve Bank of India lowered the bank cash reserve requirements for the second time in less than a week to keep confidence in credit markets. The move may be inflationary, but will lower the overnight interbank lending rate below 10%. Sensex index plunged 6%.

[R]10:00AM New York, 7:30 PM Mumbai – The RBI lowers cash reserve ratio to 6.5%. Sensex index plunges 6% on global economic worries.[/R]

Market Sentiment

Stocks in India fell sharply after markets in the region fell on the global economic slowdown. The U.S. credit market crisis with origins in lax government oversight has ensnared world financial institutions with $620 billions of losses and thrown global markets on a downward spiral.

South Korea based Posco, the third largest steel maker, reported quarterly profit of 40% and expressed cautionary views for the current quarter. L&T second quarter profit rise of 32% also disappointed the market, the stock fell 11%.

In Mumbai, the BSE 30-share Sensex declined 5.87% or 674.28 to 10,809.12, and the CNX Nifty dropped 5.12% or 180.25 to 3,338.40.

Of the stocks traded on BSE, 499 rose, 2,117 declined, and 39 were unchanged.

Trading Statistics

Daily turnover on the BSE stood at 3,372 crore rupees from 4,252.13 crore rupees yesterday.

RBI Slashes Cash Reserve Ratio to 6.5%

The Reserve Bank of India today slashed the cash reserve ratio for banks by 100 basis points to 6.5% from 7.5%. The move will release additional 40,000 crore rupees. The RBI action is to thwart any economic slowdown from weak global market conditions. Interbank lending remains robust and does not appear to be tight as tight as lending markets in Europe and America.

A similar move by RBI last week released 12,000 crore rupees in the financial system and yield on the ten-year benchmark government bond dropped to 7.91% at close of trading.

The RBI launched a similar move to ease mutual funds redemptions and offered a special 14-day Repo at 9% per annum for 20,000 crore rupees liquidity facility. Of the facility, 3,500 crore rupees has been utilized by the funds companies.

The overnight lending rate between banks declined to 10.25% after surging as high as 16% a week ago, before the RBI action.

Gainers & Losers

Reliance Industries declined 6.2% to 1,519.25 rupees on worries that refining margins will be depressed in the second quarter 2008 from a year earlier.

Reliance Communications dropped 12.24% to 235.80 rupees, Sterlite Industries slipped 10.11% to 292.15 rupees, Jaiprakash Associates slumped 14.47% to 72.70 rupees and Tata Steel fell 10.35% to 273.25 rupees.

Retailers fell on fears the credit market losses will affect consumer spending in the current festive season. Titan Industries, Videocon Industries and Gitanjali Gems plunged between 5.4% and 14.05%.

Bharti Airtel slipped 6% after announcing that it has formed a JV with Infosys to provide the innovative direct-to-home television service. Infosys also declined 5.7%.

DLF fell 3.4% to 300.15 rupees after announcing yesterday that the 1,100 crore rupees share buyback program will begin on Friday after receiving regulatory approval.

Sanwaria Agro Oils jumped 5.4% after net profit rose 56% to 22.07 crore rupees in the three months ending September 2008.

Hindustan Construction Company lost 11.7% after reporting that the Bank of India has invested 150 crore rupees in the convertible debentures in its subsidiary Lavasa Corporation.

Moser Baer India slumped 15.34% and Koffee Break Pictures rose after announcing that the board will meet tomorrow to consider a 10-for-1 stock split.

New Delhi Television tumbled 17.34% and Honeywell Automation India surged 5.36% after reporting net profit plummeted 58.20% to 28.95 crore rupees.

Gemini Communication fell 1.88%, JSW Steel shed 11.22%, Britannia Industries slipped 3.08%.

GMR Infrastructure tumbled 5.91% after acquiring a 50% stake in InterGen N.V for $954 million.