Close: RBI punishes markets for high inflation !

On the first trading day of FY07-08 the market opened with a big gap down on account of the surprise monetary tightening from RBI in the form of CRR and Repo rate hike to control inflation followed by disappointing sales figure of major Auto companies. Heavy selling pressure intensified market and markets surrendered 600 points odd and there is no confidence that this is the end yet. Market had their 2nd biggest fall in absolute terms closing near the day's low. Banking stocks were worst hit by the CRR hike, while Auto followed the roads for down fall. Only Sugar stocks managed to stand out in positive rest of all other sector were under pressure and closed in deep red. However global cues were positively firm but that did not help Indian bourses, European market started in red.

Sensex closed down by 617 points at 12455.37. Weighing on the Sensex were losses in Maruti (753.4,-8 percent), Tata Motors (669.25,-8 percent), Wipro (518.25,-7 percent), Hero Honda (639.35,-7 percent) and SBI (930.25,-6 percent). Interesting to note that there were no components of the Nifty or Sensex in positive at close.

Banking sector was the worst hit. The sector plunged down nearing to 5 % from the starting session of the trade and continued for the whole day. Following to the surprise hike in the short term interest rate and cash reserve ratio by the Reserve Bank of India (RBI) major banks sheds down to negative zone. ICICI Bank fell 5.7 % after it raised its benchmark lending rate by 100 basis points to 15.75 % . A hike in lending rate by banks will raise int erest rates on working loans of corporate. Over the last year, bank-lending rates have risen by about 300 basis points. All the banking stocks closed in red with ICICI Bank, UTI bank, Canara Bank and SBI being the major losers.

Auto sector traded weak as the major disappointing sales figure were out by Bajaj Auto and TVS Motors for the month of March 2007. The Bajaj recorded a slump in its overall sales as the number of units sold registered a 9% YoY decline. The dismal performance in the sales of two wheelers (especially motorcycles) hurt the company's performance as the sales in this segment registered a negative growth of 10%. However, its total sales for FY07 are up 19% YoY (the company sold 2.7 m units during the full year). Bajaj Auto has set itself a sales target of 3 m units for FY08, a growth of 10% YoY. The rise in interest rates and a consequent impact on two-wheeler demand can, however, hurt this growth in the current fiscal.

TVS Motor March two-wheeler sales were down 0.5% to 128,207 units from 128,857 units a year earlier. Motorcycle sales fell 13% to 73,239 units from 83,896 units, while scooterettes rose 17 % to 20,297 units from 17,410 units. Exports rose 41 % to 8,508 units from 6,032. For the fiscal year to end-March, the company sold 1.53 million units up 14 % from 1.34 million units sold the previous year. Automobile stocks ended in the negative territory with Tata Motors, M&M and Maruti (down 9% each). Hero Honda (down 7%) and Bajaj Auto (down 6%) were the losers in the two-wheeler segment .

Sugar sector traded well on board as per a leading business daily reported that 52 companies from nine States have been offered to supply 1,061 mn litres of ethanol to the oil marketing companies (OMC) for 5 % blending with petrol. The oil marketing companies had floated tenders and received offers from companies in Uttar Pradesh, Delhi, Bihar, Jharkhand, Goa, Maharashtra (partial), Tamil Nadu, Andhra Pradesh (partial) and Karnataka. The top suppliers are Shree Renuka Sugars with 217 mn litres (20.84 %), Bajaj Hindustan group 99 mn litres (10 %) and Balrampur Chini Group 44 mn litres (4.5 %). The oil marketing companies require 565 mn litres annually or about 1,700 million litres during the tender period of three years. However, the response meets about 70 % of the required quantity. The rise in crude and reduction in sugar prices benefits sugar companies and that was sweet in the market today. Almost all stocks closed in positive note with Oudh Sugar up by 9%, Dwarikesh Sugars (+5.7%), while Renuka sugars, Bajaj Hind and Balrampur Chini closed with almost good gains.

Technically Speaking: Markets traded in deep red as Sensex touched intraday high of 12811 and low of 12425. Market turnover was low at Rs 2909 cr. Overall breadth was in favor of Decliners, where the Advancers were 708 to Decliners of 11761. Sensex major support coming at 12300 for tomorrow and Resistance lies at 12691- 12944 levels.