Repo rate hike dampens market sentiment; Sensex nosedives 496 points

The Sensex and the Nifty were trading down by over 2.3 per cent in the pre-close session on Friday with all the broader indices in the red.

This followed RBI’s move to raise the repo rate by 25 bps to 7.5 per cent, which marketmen said came as a surprise.

The RBI monetary policy review sent the markets into a tizzy with the Sensex losing about 550 points and the Nifty losing about 150 points immediately after the announcement with banking and realty stocks becoming a major casualty.

At 2.57 p.m., the 30-share BSE index Sensex was down 496.23 points (2.4 per cent) at 20,150.41 and the 50-share NSE index Nifty was down 140.20 points (2.29 per cent) at 5,975.35.

Realty, banking, capital goods and PSU stocks succumbed to heavy selling pressure and were down 6.73 per cent, 4.91 per cent, 3.61 per cent and 2.54 per cent, respectively. Only healthcare, consumer durables and IT stocks were up 0.24 per cent, 0.22 per cent and 0.17 per cent, respectively.

GAIL (2.74%), Sun Pharma (1.59%), Wipro (1.44%), NTPC (1.22%), BHEL (0.37%) and Dr Reddy's (0.13%) were the only Sensex gainers, while the top five losers were ICICI Bank (6.04%), L&T (4.8%), SBI (4.52%), HUL (4.33%) and ONGC (4.16%).

In his first credit policy since taking over earlier this month, RBI Governor Raghuram Rajan has hiked the key policy repo rate.

RBI has increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.25 per cent to 7.5 per cent with immediate effect.

It has also reduced the marginal standing facility (MSF) rate by 75 basis points from 10.25 per cent to 9.5 per cent with immediate effect; reduced the minimum daily maintenance of the cash reserve ratio (CRR) from 99 per cent of the requirement to 95 per cent effective from the fortnight beginning September 21, 2013, while keeping the CRR unchanged at 4.0 per cent.

Consequently, the reverse repo rate under the LAF stands adjusted to 6.5 per cent and the Bank Rate stands reduced to 9.5 per cent with immediate effect. With these changes, the MSF rate and the Bank Rate are recalibrated to 200 basis points above the repo rate.

European benchmarks FTSE100, CAC 40 and DAX were marginally in the red.

Asian shares were mixed as investors started weighing down the Federal Reserve policy outlook, a day after the US central bank triggered a global rally by delaying the tapering of its bond-buying programme.

However, Fed tapering expectations were kept alive by the data showing US home resales surged in August to a 6-1/2-year high and factories grew busier in the Mid-Atlantic region this month.