Austere RBI sends shivers down market's spine

A spike in cash reserve ratio by the RBI and data showing heavy FII sales in index-based futures on Friday (8 December), rattled the bourses, which bucked the steady-to-firm trend in Asian and European shares.

Bank shares witnessed panic-selling. Index heavyweight Reliance Industries (RIL) weakened in late-trading.

The BSE Sensex lost 400.06 points (2.9%), to settle at 13,399.43.

Volatility was high in the second half of the trading session. After a fall of a massive 537.76 points, to 13,261.73 by 12:59 IST, the Sensex had staged an instant recovery from a lower level, to reach 13,463 at 13:21 IST, a fall of about 336 points for the day. However, recovery proved shortlived as the Sensex again drifted to 13,313 by 13:53 IST, again a fall of about 486 points for the day. It again recovered to reach 13,497 at 15:07 IST, which was a fall of about 302 points for the day. Once again, sell-off gripped the market at the fag end of the trading session and the Sensex hit 13,300.59 at 15:28 IST, a fall of 498.90 points for the day.

The market remained weak right from the onset of trading today.

The market-breadth was quite weak. For 1,974 shares that declined on BSE, 589 rose. As many as 43 shares were unchanged.

The BSE clocked a turnover of Rs 4,830 crore.

Finance Minister P Chidambaram, on Monday, said an increase in the cash reserve ratio for banks was to moderate credit growth and the government was ready to take further action to curb inflation. In a surprise move, the RBI hiked cash reserve ratio (CRR) by 50 points after trading hours on Friday. "Banking scrips will adjust because their profitability is good. The stock market is on a high so no need to worry," Chidambaram opined.

Scared out of their skins, banking stocks posted heavy losses due to the CRR hike. SBI plunged 9% to Rs 1,230, ICICI Bank lost 7% to Rs 814, and HDFC Bank shed 5.3% to Rs 1,027. Banks are likely to take a final view on raising interest rates on loans as well as deposits, by the end of this week, or early next week. Reports suggest that interest rates on home loans are likely to become the first casualty.

Reliance Industries (RIL) lost 3.2% to Rs 1,227. As many as 17.8 lakh shares changed hands in the counter on BSE.

Cellular service providers succumbed to profit-taking. Bharti Airtel shed 4.9% to Rs 602 and Reliance Communications shed 4.6% to Rs 426.70.

Tata Steel 6.7% to Rs 460. The stock recovered from a 9.2% plunge, to Rs 438, at 13:00 IST. Reacting to the CSN bid Tata Steel said Monday, it was considering its position on Corus. Brazil’s CSN today announced a bid at 515 pence per share for Corus. CSN's announcement came close on the heels of Tata Steel raising its offer for Corus to 500 pence per share from the earlier 455 pence per share, today.

Cement major ACC plunged 6.8% to Rs 1,029.50, and NTPC lost 6.5% to Rs 141.65.

Infosys lost 0.6% to Rs 2,182 in volatile trade. As per reports, the company is renewing a few of its contracts at a premium. Meanwhile, the stock has been included in the Nasdaq 100 index.

FIIs were net sellers to the tune of Rs 1,087 crore in index-based futures on 8 December – the day when the Sensex lost 173 points. They were net sellers to the tune of about Rs 106 crore in individual stock futures that day. As per provisional data, FIIs were net sellers to the tune of Rs 106 crore in the cash segment the same day.

Nymex Crude was down, or rather almost unchanged, at $62 a barrel.

Response to Cairn India IPO, which opened for subscription today, improved as the day progressed. By 15:00 IST, the IPO had bids for 17.72 crore shares compared to the issue size of 32.8 crore shares. Most of the bidding took place at the upper end of the Rs 160 to Rs 190 price band.