Indian shares fell sharply on Monday, erasing early gains, as investors expressed disappointment over Reserve Bank of India's inaction on the policy front.
Investors more or less had factored in 25 basis cut in both repo rate as well as the CRR, and as such, when the RBI unexpectedly left interest rates and the cash reserve ratio for banks unchanged, there has been a huge market sell-off immediately. Failing to maintain early gains, the rupee fell towards the 56 level against the dollar, further weighing on investor sentiment.
"Further reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressures," the central bank cautioned. Shortly after today's interest rate decision, data published by the Ministry of Statistics and Program Implementation showed that consumer price index-based annual inflation for May rose to 10.36 percent from 10.26 percent in April.
The benchmark 30-share Sensex hit an intra-day low of 16,636 in the afternoon before recouping some loss to end down 244 points or 1.44 percent at 16,706, with 28 of its component retreating. The BSE Sensex rose about 160 points to 17,110 at one point of time early in the session, tracking firm Asian cues after pro-bailout parties won Greek elections.
Rate-sensitive stocks like SBI, ICICI Bank, HDFC Bank, Maruti Suzuki, HDFC, Mahindra & Mahindra and Tata Motors led the decliners, with losses 1-4 percent, while Tata Steel rose 1.3 percent after making an open offer to increase its stake in two group firms, Tata Sponge and Tinplate Company.
Shares of Tinplate Company and Tata Sponge Iron climbed about 19 percent and 13 percent, respectively. India's second-largest two-wheeler maker Bajaj Auto also bucked the overall downtrend to end about a percent higher.
Among other prominent decliners, Jindal Steel, BHEL, Gail India, ITC, Dr Reddy's Laboratories and Sterlite Industries fell 2-4 percent.
The 50-share Nifty index fell by 75 points or 1.46 percent to 5,064, while the BSE mid-cap and small-cap indexes ended down 1.1 percent and 0.7 percent, respectively.
High inflation numbers "might have weighed on the mind of the central bank" when it decided to hold its policy rates, finance minister Pranab Mukherjee said. Normally in mid-quarter review, it is not necessary for the governor to consult the finance ministry, he told reporters in New Delhi.
HCL Technologies tumbled 3.4 percent on talk of a major management reshuffle. Jet Airways also lost over 3 percent after the airline announced the temporary suspension of its Brussels-New York (JFK) flight effective 10th September 2012. SKS Microfinance plunged 6.4 percent on a report that it has been barred from doing business in Andhra Pradesh's Mahabubnagar district for not following rules.
Stocks rallied elsewhere across Asia, as a narrow election victory for Greece's pro-bailout parties which favor austerity measures required to stay in the eurozone eased investor fears about contagion from the country's political and economic turmoil. European stocks gave up some initial gains as investors shifted focus away from Greece to Spain where the nation's benchmark 10-year bond yields climbed to 7 percent.
by RTT Staff Writer
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