Sensex falls 2.4% on rate rise

Sensex falls 2.4% on rate rise

Mumbai: Indian shares fell 2.4% on Tuesday to its lowest close in nearly six weeks after the central bank raised interest rates by a hefty 50 basis points, triggering concerns that the aggressive tightening will dent corporate earnings. One basis point is one-hundredth of a percentage point.

The benchmark stock index also extended slide to a seventh consecutive session, its longest losing run since November 2008.

Also see | Tuesday’s Tally (PDF)

The rate increase was sharper-than-expected and the central bank signalled it would battle stubbornly high inflation even at the expense of the government’s economic growth ambitions.

“This could eventually taper down expectations for corporate earnings, and hurt the market sentiment," said Deven Choksey, managing director and CEO of KR Choksey Shares and Securities Pvt. Ltd.

The 30-share Bombay Stock Exchange (BSE) benchmark index, Sensex, fell 2.44%, or 463.33 points, to 18,534.69, its lowest close since 24 March. Only one of its component managed to close in the green.

Financials led the fall, with the banking sector index dropping 3.1%.

Expectations for rate increases for the remainder of 2011 have jumped by 50 basis points after the central bank’s move on Tuesday, a snap poll found.

The 50-share National Stock Exchange (NSE) index, Nifty, slid 2.4% to 5,565.25.

Losers were more than five times the number of gainers, while 618 million shares changed hands on NSE, lower than its 90-day daily average volume of 645 million shares.

Foreign funds that have invested a net of more than $3 billion in Indian equities since the start of March, have been net sellers for the last five trading sessions in April, triggering concerns this could turn into a near-term trend.

Top lender State Bank of India fell 4.2%, while rivals ICICI Bank Ltd and HDFC Bank Ltd slipped 2.3% and 2.5%, respectively.

Other rate-sensitive sectors such as real estate and automobile also took a beating.

Top listed real estate firm DLF Ltd dropped 2.4%. Automobile majors Tata Motors Ltd, Maruti Suzuki India Ltd, Mahindra and Mahindra Ltd and Bajaj Auto Ltd fell between 1.2% and 4.8%.

Jaiprakash Associates Ltd tumbled 8.7% after Goldman Sachs Inc. downgraded the stock to “neutral" from “buy". “We see limited areas of potential positive surprise as high debt levels remain a concern on earnings," Goldman Sachs said.

World stocks fell as investors pocketed gains after a five-session winning run. The MSCI All-Country World Index shed 0.7% by 1015 GMT, and the emerging share index was down 1.3%.

Bharat Heavy Electricals Ltd was the only Sensex component that closed higher. The top power equipment maker gained 0.2% to 2,014.40 after Goldman Sachs upgraded the stock to “buy" from “neutral", citing favourable risk-reward ratio.

Maharashtra Seamless Ltd climbed 1.7% to 362.40, after the maker of seamless pipes and tubes said its March quarter net profit rose 21%.

Essar Shipping Ports and Logistics Ltd fell nearly 5% to 92.65 after the country’s second largest private sector port operator said its net profit dropped to 92.1 crore in the fiscal year 2011, from 93.8 crore in the previous fiscal.