Experts fear dip in markets in the wake of CRR hike

The stock markets as a whole, and bank stocks in particular, could take a hit on Monday following the RBI hike in the cash reserve ratio (CRR) and repo rates.

"The rate hikes will have a negative impact on the markets as it will lead to an increase in prime lending rates of banks. This being the case, the overall sentiment will be weak," said Mr A. Balasubramanian, Chief Investment Officer, Birla Sun Life Mutual Fund.

"It is difficult to say how low the markets will open on Monday morning because the markets are working in sync with global trends and are is able to marginally absorb negative news. But there will definitely be a softening," said Mr Shailendra Jindal, CEO, Mehta Financial Services Ltd.

"The liquidity will not be affected that much because of increased Government spending. There have also been a lot of dollar inflows which will continue to come in," said Mr Balasubramanian.

The RBI has also halved the interest rates on CRR from one percentage point.

"Put together, all these factors will affect the net interest margins in the short run," said Mr R. Rajagopal, Head (Equities), DBS Cholamandalam Asset Management.

Sectors across the board will be hit, but banking and auto stocks are expected to take the hardest blow.

"Banking, real estate and auto sectors will be the most hit because they are driven by interest rates," Mr Jindal.

"Auto and consumer durables stocks will fall. It may also lead to further appreciation of the rupee, which will lead to IT stocks falling as well," said a fund manager.

However, it is felt that sectors like pharmaceuticals, telecom and FMCG will be spared the negative market sentiment.

"There was an indication that further tightening would happen. It is just the timing that has taken everyone by surprise," said Mr Anup Maheshwari, Head (Equities and Corporate Strategy), DSP Merrill Lynch Fund Managers Ltd.