Mumbai: The BSE Sensex eased on Monday after a surprise rate increase by the Reserve Bank, with trading volume low following a nationwide general strike that disrupted businesses and traffic.
Weak global markets kept investors wary about foreign portfolio inflows on fresh doubts about a recovery in the United States and signs China’s robust growth may be slowing.
Reliance Natural Resources shed more than a quarter of its value after a deal to fold into sister firm Reliance Power valued the company at a steep discount to its market capitalisation on Friday.
The main 30-share BSE index closed down 0.11% or 19.51 points at 17,441.44, with 18 of the components falling. The benchmark, which had shed 0.6% last week, seesawed through the day in a tight band.
In the broader market, advances led declines in the ratio of 1.3:1 on volume of 315.3 million shares, about a quarter lower than the daily average.
There were fewer participants as a strike by opposition parties over higher fuel prices shut down parts of the country in a test of the government’s efforts to cut subsidies and trim a budget deficit.
Banks started lower after the late Friday rate rise, but pulled into positive territory on hopes a fast-growing economy will eventually boost demand for loans.
The central bank raised interest rates almost a month earlier than expected, and analysts said it would likely follow up the quarter point hike with another move on July 27, due to concerns about inflation above 10%.
”Given the size of the rate hike, I don’t really expect demand to be impacted. India is showing growth, so money will continue to flow in,” said Deven Choksey, chief executive at KR Choksey Shares & Securities.
India’s services sector expanded at its fastest clip in two years last month, led by increases in business expectations and new orders, a survey showed.
After dipping slightly in May, the HSBC Market Business Activity Index, based on a survey of 400 firms, rose to 64.0 in June from 58.2 last month, pointing to a substantial rate of growth. Any figure above 50 indicates expansion.
Shares in top lender State Bank of India closed up 0.3% at Rs2,272.60, while mortgage lender HDFC gained 0.8% to Rs2,939.25. Private-sector lender ICICI Bank rose 0.1% to Rs841.
Macquarie analysts wrote in a note rising interest rates may not immediately translate into higher lending rates due to large differential between deposit growth and credit growth, and would likely curb margins of lenders.
High risk sectors like real estate and retail loans could be the first ones to see an increase in rates, they said.
Shares in Reliance Natural ended down 27.3% at Rs46.30, after hitting Rs45.50, their lowest level since 21 May. Reliance Power shares rose 3.6% to Rs181.40, after climbing to 189.80, their highest in more than a year.
Reliance Natural shareholders will receive one Reliance Power share for every four they hold, the firms, both controlled by billionaire Anil Ambani, had said on Sunday.
Shares in auto and capital goods firms fell on worries rising interest rates could impact margins in coming quarters.
Top car maker Maruti Suzuki shed 0.9% to 1,395.05 rupees and leading truck maker Tata Motors dropped 0.3% to Rs765.
The 50-share NSE Nifty dipped 0.02% to 5,235.90.
Ashok Leyland rose 4.9% after the firm reported late on Friday its June commercial vehicle sales more than doubled from a year earlier.
Media firms Television Eighteen India Ltd, IBN18 Broadcast and Network18 Media rose by 1 to 6% after the companies said their boards would meet on 7 July to consider a restructuring proposal.
Rashtriya Chemicals & Fertilizers rose 5.7% after media reports the state-run firm had opened its residential colony in eastern Mumbai for redevelopment.