Sensex spooked by RBI's aggression

BSE Sensex ended at 18,518 slipping 353 points. NSE Nifty closed at 5,574 losing 105 points.

Indian stock indices closed with steep losses at the end of a shocking day, as the RBI took everybody by surprise with a wider-than-anticipated rate hike and persistently hawkish stance. After crossing the 5700 mark in early morning, the main indices nose-dived soon after the RBI raised the key policy rates by half percentage point and raised its inflation estimate for FY12 to 7%.




The repo rate and the reverse repo rate have been hiked by 50 bps, as the RBI persists with its efforts to tame the inflation monster notwithstanding some moderation in economic growth. The repo rate now stands at 8% and the reverse repo rate is at 7%.


Finally, the BSE Sensex ended at 18,518 slipping 353 points. It had earlier touched a day's high of 18,944 and a day's low of 18,481. It opened at 18,898. The NSE Nifty closed at 5,574 losing 105 points.


All the sectoral indices ended in the red. The Realty, Banking and Capital Goods stocks were among the major laggards. The Mid-Cap and Small-Cap stocks were under pressure too. Among the 50 stocks in the Nifty, only Power Grid, TCS and HCL Tech ended in the positive terrain.


The selloff today came amid heavy volumes as traders adjusted their positions in the wake of the RBI announcement. Being the F&O expiry week also added to the spurt in trading volumes.


"For the second time in four months, the RBI has defied consensus expectations by hiking policy rates by an aggressive 50 bps. Its stance is pretty clear; it wants inflation to moderate sharply from the current level, which is within striking distance of double digits. In taming the inflation demon, it is ready to sacrifice a little bit of growth.


Today's move, coupled with the series of rate increases of the past several months will have an impact on the economy. Investments and consumption could moderate further, which in turn might drag the GDP growth down below 8%. What's worse, the RBI may not be done with the tightening. All hopes are on monsoon and the Government in keeping its fiscal health in check," says Amar Ambani, Head of Research, IIFL - India Private Clients.