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Sensex Falls By Nearly 500 Points On Rate Hike Fears

Bombay Stock Exchange (BSE). Image Credit: Tehelka

MUMBAI, Jan 7: The Sensex lost nearly 500 points (2.44 per cent) on Friday, as worries of a steep rate hike by the Reserve Bank of India (RBI) dominated market sentiment.

The drop pulled down the Sensex below the 20,000 level to 19,691.81. The Nifty also tanked by over 143 points to 5,904.60.

Among the stocks that suffered steep losses were banking and automobile stocks, since both are sensitive to interest rate moves. Head of research at Geojit BNP Paribas, Alex Mathews said, “We think that the Reserve Bank of India may carry out steep hikes, more than what the markets had earlier expected.”

Markets had earlier expected rate hikes of only 0.25 per cent in the policy rates. “We think that the rate hikes will be more in the region of about 0.75 per cent along with other liquidity tightening measures.”

Foreign institutional investors (FIIs) were the major sellers. FIIs’ selloff in the markets was equivalent to Rs 3,464.5 crores. But FIIs have been consistently selling since the beginning of this calendar year. The selloff was partly driven by risk aversion. Besides, global investors are now returning to US stocks, where valuations are favorable.

Mounting risk aversion, Mathews said was driving investors to precious metals, particularly gold and silver, that have rallied in the global markets. Gold prices in the London opening on Friday were $1,425 an ounce, a sharp rise of 76 cents over the previous day.

The selloff was also driven by fears of the Income Tax (I-T) searches on some major corporates. Though there were no official statements from the tax department, the markets were agog with rumors that the some of the real estate companies had been searched. The realty index of the Bombay Stock Exchange (BSE) shed 1.8 per cent, as a result.

Stocks that dropped included Tata Motors which fell 5.52 per cent to close at Rs 1,189.5, HDFC Bank dropped 2.51 per cent to Rs 2,268.35. Technology sector stocks that fell included Infosys and TCS. Infosys, due to announce its third quarter results next week, shed 3.15 per cent to end at 3,366.50.

TCS dropped 2.78 per cent to Rs 1,141.60. All these companies have large exposures in Europe and are consequently sensitive to events in both the US and Europe. The BSE IT index reflected the broad selloff in the information technology sector shedding 195 points to close at 6680.81 or 2.83 per cent lower than the previous day. The BSE Banking index dropped 1.4 per cent to end at 12,512.18 points.

*Reported by C Shivkumar

(Courtesy: Tehelka)

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