Home Markets Sensex falls for 6th day; banks tumble on rate hike fears

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Mumbai: The BSE Sensex declined 0.23 per cent on Tuesday, taking its losing streak to a sixth consecutive session. The broader Nifty closed below the key 6,150 levels, falling 0.25 per cent.

Markets opened higher and traded in the green for most part of the sessions. However, selling pressure set in the last hour of trade. The Sensex has now lost over 700 points in the previous six sessions.

Banking stocks were the worst hit amid concerns of another rate hike on Wednesday. The Bank Nifty on the NSE closed 1.4 per cent lower. Rate sensitive realty stocks declined 0.7 per cent, while auto stocks also closed in the red.

HDFC Bank was the top Nifty loser, down 3.9 per cent at Rs. 657.60. It’s promoter mortgage lender HDFC fell over 2.5 per cent to end atRs. 778.45.

State Bank of India, the country’s biggest lender, fell 0.8 per cent to Rs. 1,718.30.

Most analysts expect the Reserve Bank of India to hike policy rates by at least 25 basis points tomorrow after headline inflation in November surged to a 14-month high. Though India’s inflation is driven by high food prices, the RBI has persisted with raising rates in the past. Raising rates have had little impact on food inflation, but they have definitely impacted India’s growth, which is now below 5 per cent.

High inflation “means the RBI has to hike rates or lose credibility,” Dariusz Kowalczyk, senior economist for Asia ex-Japan at Credit Agricole in Hong Kong told Reuters last week.

“Rate hikes will not correct food prices,” he added. “The hawkish intention is a mistake, in our view, and will lead to slower growth.”

Jyotivardhan Jaipuria, Head of Research, Bank of America Merrill Lynch told that markets have gained sharply over the last 3-4 months, but a correction is in the offing because of what the RBI and the US Fed may do.

“We are looking at 7-8 per cent correction in markets,” he said.

Defensive stocks, such as healthcare and IT stocks, gained. Drugmaker Ranbaxy closed with over 5 per cent gains, while Cipla ended 3.2 per cent higher. Sun Pharma advanced 2.2 per cent.

Another factor weighing on sentiments is the momentous US Federal Reserve policy decision later this week. Investors are on tenterhooks over when the Fed will start to reduce its $85 billion-a-month bond-buying programme, a major driver of global risk assets in recent years.

A majority of economists polled by Reuters expect the taper to happen in March, but a recent run of upbeat economic data has steadily shortened the odds on an announcement at this week’s two-day meeting concluding on Wednesday – or in January.

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