The Hindu Business Line : Interest rate hikes trigger sell-off across markets

Interest rate hikes in Korea and Turkey among other countries triggered a brutal sell off across emerging markets on Thursday and the Indian stock market bore the brunt of it. The Reserve Bank of India, too, announced a quarter percentage-point hike in repo rates, but this was after market hours.

In four straight trading sessions, the benchmark Sensex has shed 1154 points. Thursday's collapse has effectively wiped off all gains made year-to-date; the index is now close to 100 points lower than its level at the beginning of the year.

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Only seven per cent of the stocks traded on the BSE advanced, indicative of the extreme bearishness that prevailed in the market. The sustained decline over the recent weeks appears to have given retail investors the jitters. Provisional estimates indicate that FIIs net sales on Thursday was only to the tune of Rs 20 crore, suggesting that domestic investors played a greater role in the day's decline. FII pullouts in June alone, however, have been about Rs 13,000 crore.

Mid-cap and small-cap stocks continue to be hammered. The BSE Midcap and BSE SMLCAP declined about eight per cent each.

Buzzing stocks

Still, there were stocks that managed to keep the buzz going. The stock of Tulip IT Services gained nine per cent. Blue Star was another rare gainer, adding seven per cent to its previous close. Other gainers in the midst of the selling pressure include BOC India, Titan, Hotel Leelaventure, Apollo Tyres, Sesa Goa, Mercator Lines, Gujarat Alkali and MTNL.

Several recently listed stocks took a severe beating. The stocks of Repro India, Bombay Rayon, Nectar Life Sciences, Solar Explosives, Inox Leisure and Allsec Technologies lost 19-20 per cent.

Sector Focus

Bank and oil stocks were the worst hit on Thursday. The stock of Kotak Mahindra Bank was a prominent loser, declining 19 per cent. Oriental Bank, Union Bank, UTI Bank and IndusInd Bank were other losers. There was selling across oil refining and marketing companies. The stocks of MRPL and Chennai Petroleum took a pounding. While HPCL lost 12 per cent, BPCL contained losses at 4.5 per cent.

Metal stocks continued their decline. The BSE Metal Index has melted 36 per cent over the past month. Jindal Steel, Essar Steel and Gujarat NRE Coke were prominent losers, shedding between 12-18 per cent of their previous value. The stocks of Sesa Goa and National Aluminium ended the day relatively flat.

The least affected sector was IT. The BSE IT index declined 3.6 per cent. Frontline stocks such as Infosys, Satyam and TCS weathered the sell off better. FMCG stocks also fared relatively better, with modest declines in Nestle, Tata Tea, GlaxoSmithKline Consumer and Britannia.

Stock-specific action

In a different market, positive news in the form of an earnings announcement or new tie-ups would have been well received. Nothing, however, could quite appease the panic selling on the part of investors. Indian Hotels declined nine per cent, even as it announced that its fourth quarter profit had risen by 87 per cent.

Pantaloon Retail declined 11 per cent. The company is to set up a 50:50 joint venture with Talwalkars Better Value Fitness, for rendering health and fitness services.

Larsen & Toubro declined 5.3 per cent. It announced a $100-million joint venture with Malaysia-based SapuraCrest that would expand its business in engineering and oil and gas.