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Rediff.com  » Business » Markets end lower for the second straight day

Markets end lower for the second straight day

By Sohini Sen
July 27, 2011 16:18 IST
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BSEFears of slowdown in growth after the latest 50 basis points rate hike continued to weigh on the investor sentiment.

The Sensex dropped to a low of 18,359, thanks to a partial recovery - the index ended at 18,432 -- down 86 points.

In the process, the Sensex has declined 2.3% (439 points) in the last two trading days.

The NSE Nifty ended at 5,546 - down 28 points, a day ahead of the derivatives expiry.

Rate sensitive stocksĀ -- mainly the banking and realty were under selling pressure for the second straight day. Power and capital goods stocks too witnessed considerable weakness today.

Meanwhile, global markets were mixed as the US remained without any significant step to prevent default before the August 2 deadline.

After the said deadline, the US treasury would not be able to meet the debt obligations.

Markets in Asia took a beating, with Hang Seng and Nikkei ending in red. Shanghai Composite, however, added 0.7% at 2,723.

The RBI in its monetary policy review on Tuesday, raised the repo rate, the rate at which it lends to banks, by 50 basis points to 8%.

This has caught industry and market participant unawares as most of them were expecting a 25 bps rate hike. More importantly, the Central Bank continues to remain hawkish, raising fears of more hikes if inflation fails to cool down.

Significantly, RBI said the measures were expected to "reinforce the point that in the absence of complementary policy responses on both demand and supply sides, stronger monetary policy actions are required."

"With inflation persistently remaining way above the comfort level, the Reserve Bank of India had very little option but to go for another hike, but the 50 basis point hike in each repo and reverse repo rates is much above comfort

levels.

"While the steps have been aimed at cutting down excess demand, the supply-side factors that have been fuelling inflation remain largely unaddressed, and monetary policy can do little about that.

"In fact, the higher interest rates will only curb investor appetite," felt Hemant Kanoria, chairman and managing director, Srei Infrastructure Finance.

RBI also recognised the fact that banks' asset quality would be impacted as rates had hardened. However, both banks and RBI said rising non-performing assets did not pose any systemic risk.

Banking stocks extended Tuesday's fall and was down 1% at 12,556.

Punjab National Bank, Bank of Baroda, Canara Bank,Yes Bank, Union Bank and Federal Bank slipped 2-4% each. From the big-cap space, SBI and ICICI Bank were down 1.5% each.

Realty stocks edged down on worries that a higher interest rate would negatively impact demand for houses as well as commercial places. BSE realty index was the most hit among the rate sensitive sectors and was down nearly 1% at 2,124.

BHEL extended Tuesday's 4% fall - and touched a two-year low of Rs 1,805.

The state-owned capital goods company has reported 22% y-o-y growth in net profit at Rs 816 crore for the quarter ended June 30, 2011, compared with Rs 668 crore in the previous year's quarter.

Meanwhile, consumer durables stocks moved up with the index gaining 1.5% at 6,819.

HDFC, HDFC Bank and Maruti Suzuki gained in trades. Maruti added 2.5% to Rs 1,206 on better than expected Q1 numbers. Telecom stocks moved up. Reliance Communications and Bharti Airtel edged up 1.5% each.

Markets would be looking at some more firms who will come out with their earnings soon.

ACC, Punjab National Bank, ONGC, ITC and Jindal Steel will annnounce quarterly numbers tomorrow, followed by ICICI Bank, BEML and Mahindra & Mahindra Finance on Friday.

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Sohini Sen in Mumbai
Source: source
 

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