The Hindu Business Line : Sensex crashes 617 pts; auto, banking stocks lead sell-off

Mumbai April 2 In the sharpest dip in about 10 months, the BSE benchmark index Sensex caved in by 616.73 points reacting to the Reserve Bank of India's hike in repo rates and CRR (Cash Reserve Ratio) last week. Automobile and banking stocks led the broad based sell-off in the markets.

The fall, which comes on the first trading session of FY08, has also been the second steepest for the Sensex; on May 18, 2006, Sensex saw its worst drop by 826.38 points.

RBI's move to control inflation and tighten money supply raised fears among investors as companies across sectors would be hit and earnings estimates for FY08 would have to be revised, said dealers.

Sensex lost 4.72 per cent to close at 12,455.37 amidst constant selling throughout the day. The NSE S&P CNX Nifty fell 4.92 per cent to end at 3,633.60.

Banking stocks plunged on expectations of a fall in interest earnings impacting banks' profitability.

The BSE Bankex ended down 5.95 per cent at 6,152.59 points while Bank Nifty index fell 6.57 per cent at 4,959.65 points.

"Money is going out of banking system and will slowdown loan growth. To meet lending requirements, banks will make funds expensive and one has to see to what extent they can pass it on to the customers. Net interest margins of banks will be affected in the first quarter of the fiscal 2007-08. Investment portfolios of banks may also take a hit as bond prices have fallen and yields have moved up. There may be some correction in profit growth of banks in the coming quarter," said Ms Sarika P. Lohra, banking analyst, Angel Broking.

The SBI scrip plunged 6.31 per cent at Rs 930.25 while ICICI Bank fell 5.7 per cent at Rs 804.50.

A report from broking firm ICICI Securities said, "Among our coverage of banking stocks, we expect the current measures to shave off earnings by 0.8 per cent to 1.5 per cent in FY08 and FY09."

"The current mood in the market is such that any bad news will accentuate a fall while positive news will be discounted," said Mr Jayant Pai, Vice-President, Parag Parikh Financial Advisory Services Ltd.

The interest rate hike dented automobiles and real estate stocks. "Sectors such as auto, housing and real estate, dependent on the banking sector, may suffer a cut on their margins. Companies in these sectors may have to slash prices to provide an incentive to customers as the high interest rates on retail loans could be a potential deterrent," said Mr A. Prasanna, Vice-President, ICICI Securities.

BSE Auto index was the biggest loser among the sectoral indices, down 6.15 per cent at 4,569.91 points.

Automobile sector down

Another dampener for the automobile sector came with the disappointing sales numbers for two-wheelers. "The two-wheelers segment showed negative growth of 8-10 per cent as against the sales numbers in March last year, which was another trigger for the fall," said Mr Lalit Thakkar, Director, Research, Angel Broking. Also markets will take cues from sales numbers of other commodities, he added.

Maruti Udyog was the biggest loser in the Sensex, down 8.09 per cent at Rs 753.40 followed by Tata Motors losing 8.04 per cent at Rs 669.25.

FIIs contributed to the selling spree and were net sellers for Rs 509.33 crore as per the provisional figures on the NSE. Analysts said global investors have slowly started changing their risk appetite for emerging markets.

Low volumes marked the day with shares worth Rs 3,011.09 crore being traded on the BSE while the turnover on NSE stood at Rs 6,866.85 crore. Brokers said retail volumes have almost been down 30-40 per cent. Another major fall was seen in stocks of consumer good companies. The BSE consumer goods index ended down 5 per cent at 8,621.36 points.

None of the index heavy weights in the Sensex ended higher. Market breadth was negative with stocks of 1,771 companies declining while 702 companies advanced on the BSE.

Analysts are now finding the valuations of certain stocks attractive. Mutual funds see it as a huge opportunity for bottoms up approach. "The current valuations are attractive and we are looking at bottom fishing," said Mr Nikunj Doshi, Vice-President, Equity Funds, Kotak AMC.

"Markets expect inflation to be under control once the winter (rabi) crop is available in the market. Also, in June, the US Fed is expected to cut interest rates as the US economy is slowing. This will lead to increased global liquidity in our markets. Hence, June onwards, markets will get a definitive trend," said Mr Amitabh Chakraborty, President, Equity, Religare Securities Ltd.