RBI policy spooks market, Sensex down 463 pts

• The key benchmark indices continued their downtrend till the close of the day. The BSE 30-share Sensex touched a new low at 18,534, down by 463 points or 2.44 percent.

[caption id=“attachment_3958” align=“alignleft” width=“380” caption=“Choppy trade on policy announcement. Reuters”]  [/caption]

• Markets were affected after the Reserve Bank of India’s (RBI) raised its key short-term lending rate by an aggressive 50 basis points (bps) and also lowered the baseline economic growth forecast for the current year. The RBI said it will continue with its anti-inflationary stance.

• Interest rate sensitive banking, realty and auto stocks led the decline after the central bank raised key short-term interest rates by an aggressive 50 basis points at a policy review today.

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• Banking stocks got an additional hit from the central bank’s decision to tighten provisioning norms on certain categories of non-performing advances and restructured advances. FMCG, capital goods and telecom stocks also declined. The market breadth was quite weak. All the sectoral indices on BSE were in the red.

• India’s largest bank by net profit and branch network State Bank of India dropped 4.03%, the largest private sector bank by net profit ICICI Bank declined 3.03% and India’s second-largest private sector bank by net profit HDFC Bank slipped 2.32%. Kotak Bank was the least affected, though it too fell by 0.47 percent, while Bank of India was the major loser with a loss of 6.34%

• The market breadth, indicating the health of the market, was quite weak. On BSE, 2080 shares declined while 718 shares advanced. 127 shares remained unchanged.

• Among the 30-member Sensex pack, Bhel was the only stock that was positive with a rise of 0.19 percent, the remaining 29 declined ranging from -8.05 percent in the case of Jaiprakash Associates to -0.43 percent in the case of Infosys. Auto stocks, which have already been affected by higher interest rates, have been severely affected with almost all falling in the range of 5 percent. Index heavyweight Reliance Industries (RIL) slipped 2.15% to Rs 943.95.

• Morgan Stanley in its post RBI policy report has maintained their negative stance on banks. The reports say there will be a 4-8% impact on the profit before tax (PBT) level just by taking into account the impact of savings rate increase.