Mumbai: Stock prices crashed Tuesday, as bulls paid dearly for taking RBI governor Duvvuri Subba Rao's conservative style for granted. The central bank on Tuesday hiked key signalling rates—the rates at which RBI borrows from and lends to banks by 50 basis points each, instead of 25 basis points as was widely expected of it.
Bank shares were the worst hit as the RBI move to raise savings deposit rate will make funds costlier for lenders, coming at a time when already there are fears of credit growth slackening due to high interest rates. The broking arm of StanChart expects current year earnings of banks to decline 12-20 per cent over last year
The 30-share BSE Sensex shed 474.63 points or 2.5 per cent to close at 18526.39, and the 50-share Nifty closed at 5565.25, down 136.05 points or 2.5 per cent.
Apart from banks, auto and realty shares also fell sharply because of their sensitivity to interest rates. The BSE sectoral indices for banks, auto and realty, tumbled over 3 per cent each.
Market experts are worried that higher borrowing costs—resulting from an increase in interest rates—will hurt companies’ operating margins. This in turn, could lead to a downgrade in earnings estimates, and drag share prices lower.
The ferocity of the sell-off took the market by surprise, and some brokers caution that companies where the promoters have pledged significant chunks of their shares to raise money, could be among the major casualties in the coming days.
Technical analysts see the Nifty breaching 5600—a key support level for the past few weeks—as a cause for worry.
“It is a good time to enter banking shares,” Sanjay Sinha, chief executive officer, L&T Mutual Fund, told CNBC-TV18. “There could be some more downside, but it may not be as sharp as seen today. Most banks are now quoting at a price to adjusted book value of 1.0-1.25, which is quite attractive,” he said.
SBI, ICICI Bank, HDFC Bank, PNB, HDFC and Axis Bank were down 2-5 per cent. Auto shares like Tata Motors and Bajaj Auto plunged 5 per cent each. M&M plummeted 4.5 per cent and Maruti was down 2 per cent.
R Murlikrishnan, Head – Institutional Broking of Karvy Stock Broking said banks and interest rate sectors would clearly take a knock.
"Next three months going to be tough on the market. Inflation remains at elevated levels. Investments cycle will slow down impacting demand and earnings growth rates. The central banker GDP growth of 8 per cent looks ambitious given the current inflationary trends. This is a significant risk to growth and earnings revision for the markets for FY12 will have a downward bias. Banks and interest rate sectors will clearly take a knock. Banks have till now passed the interest rate upswing and manage their NIM’s. But a 50bps hike would make things tough given the slowing credit off-take. As the economy slows the NPA’s will start throwing up," he said.
49 out of 50 shares closed in the red on Nifty. Jaiprakash Associates was the biggest loser, with falling 8 per cent.
Heavyweights ONGC, Reliance Industries, L&T, TCS, Bharti Airtel, ITC and Wipro tumbled 2-4 per cent. However, only BHEL ended marginally higher.
The Nifty May futures ended with 3 points discount. Market breadth was in favour of declines - about 6 shares declined for every one share advanced.
Midcap shares like Carborundum, Rajesh Exports, Info Edge, Maharashtra Seamless and Novartis India gained 1.5-4 per cent while Patni Computer, IRB Infra, Pantaloon Retail, Escorts and Kwality Dairy lost 7-8 per cent.
Smallcap shares like Carol Info, Talwalkars Fitness, Prraneta Inds, Oriental Hotels and HFCL rallied 4-10 per cent. However, SREI Infra, Poly Medicure, Shasun Pharma, Century Plyboard and Mirc Electronic slipped 7-8 per cent.
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