Mkt jitters: Sensex sheds more than 600 pts

Sensex witnessed the second biggest intra-day fall on Monday. The bears went on a rampage after the RBI tightened monetary policy on Friday by raising short-term lending rates to contain inflation. All sectoral indices were trading in red. Auto stocks plunged over six per cent.

Sensex closed near its intra-day low; at 12,455.37 points, losing 4.72 per cent or 616.73 points through the course of the day. Nifty closed at a loss of 4.92 per cent or 187.95 points, to end at 3,633.60. Earlier, Sensex had fallen by 826 points on May 18,2006, its biggest intra-day fall till date.

A surprise hike in the repo rate and the cash reserve ratio announced by Reserve Bank of India after trading hours on Friday (30 March 2007), spooked the bourses. The RBI raised its short-term lending rate, the repo rate, by 25 basis points to 7.75%. The central bank also raised the cash reserve ratio (CRR) by half a percentage point. The CRR will rise to 6.50% in two tranches, the first on 14 April 2007 and the other on 28 April 2007, and will drain Rs 15500 crore from the banking system.

'Market was expected to react negatively to this news. One is likely to see a sell off on Government securities,' Gordon Rodrigues, Head of Fund Management, Fixed Income, HSBC Asset Management Company.

Midcap and Smallcap stocks followed the broader market. The BSE Smallcap index closed at 6,294 down 2.7 per cent and the BSE Midcap index ended at 5,384.12 down 3.25 per cent.

About 684 shares advanced, 1736 shares declined, and 73 shares remained unchanged. The BSE cash turnover was Rs 2910 crore and the NSE cash turnover was at Rs 6858 crore. The total market wide turnover was at Rs 38644 crore.

'As the market was in a downtrend, the interest rate hike has only accelerated the fall. I think the market will breach the 12,300 level soon,' said Jayant Pai, vice-president of equity sales at Parag Parikh Financial Advisory Services.

Banking stocks lost 5.95% or 389 points ending at 6,152 points. A hike in lending rate by banks will raise interest rates on working loans of corporates. Over the last year, bank-lending rates have risen by about 300 basis points.

ICICI Bank fell 5.70 per cent to Rs 804 after it raised its benchmark lending rate by 100 basis points to 15.75% on Saturday. ICICI Bank also raised its floating reference rate for consumer loans, including home loans, by 100 basis points to 12.75%, effective immediately. Yes Bank raised its prime lending rate by 75 basis points to 14.75%.

Banking stocks may fall in the short term, as a further interest rate hike will be in the anvil,' feels Rashesh Shah, CEO & MD, Edelweiss Capital.

SBI lost 6.31 per cent to end at Rs 930 and HDFC Bank lost 5.03 per cent ending at Rs 901. Oriental Bank of Commerce was the biggest loser on the index; the stock ended 10 per cent lower at Rs 168.

Rate sensitive sector, auto plummeted 299 points on the BSE to close at 4,569 points down 6.15 per cent. Auto shares were hit due to concerns that any rise in lending rates will rein in demand. Sluggish-to-weak March 2007 sales was yet another reason for the fall in two-wheeler scrips. Maruti slid 8.09 per cent to close at Rs 753; Tata Motors lost 8.04 per cent to down to Rs 669 and M&M slipped 8.31 per cent to end at Rs 715.

Sugar was the only sector that was not hammered down on Monday. Several sugar stocks were trading in the green. Balrampur Chini ended up 2.05 per cent at Rs 67.25; Bajaj Hindustan rose 1.36 per cent to Rs 197 and Triveni Engineering added 2.41 per cent to end at Rs 55.

However, Rana Sugars fell 0.4% to Rs 25.05, after the company became eligible for carbon credits as per a registration with the United Nations Framework Convention on Climate Change with retrospective effect, 2003. This will raise the net profit for 2006-07 by Rs 10 crore on the 1.30 lakh units of CERs earned at $17 per unit.

As per provisional data, FIIs were net buyers to the tune of Rs 640 crore on Friday (30 March), the day when the Sensex rose 92 points ahead of RBI's announcement of a hike in repo rate and CRR.

Asian stocks edged higher on Monday (2 April 2007). Key benchmark indices in Hong Kong, South Korea and Taiwan were in the green. Only Japan was down 1.50%.

US stocks ended little changed on Friday (30 March) as word that the United States had imposed duties on some Chinese imports offset strong economic news and a pullback in oil prices. The Dow Jones industrial average finished up 5.60 points or 0.05%, at 12,354.35. The Standard & Poor's 500 Index slipped 1.67 points or 0.12%, to 1,420.86. The Nasdaq Composite Index inched up 3.76 points or 0.16%, to close at 2,421.64

Oil prices eased but held just under $66 a barrel following a near two-week rally on tensions over Iran's capture of British military personnel and worries over US gasoline supplies ahead of the summer driving season.