Stocks

Bank Nifty tumbles on RBI policy decision

K.S. Badri Narayanan amp R.Y. Narayanan Chennai/Coimbatore | Updated on October 30, 2012 Published on October 30, 2012

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Stock market, particularly banking index, turned extremely weak after the RBI maintained status quo on rates and left its key repo rate unchanged.

The BSE Sensex, which touched a high of 18,718 in early trade on rate cut expectations, tumbled to 18,455.27, a fall of 166 points over Monday’s close.

Bank Nifty saw the biggest slide. It was quoting at 11,263.8, down 1.8 per cent or 210 points over the previous. Today’s high and low were 11,600.05 and 11,263.8, respectively.

While in terms of value SBI was the biggest loser, all the Bank Nifty stocks were in the red, whether public or private sector banks.

SBI was down by Rs 62.65 to trade at Rs 2,105.05. Axis Bank lost Rs 22 at Rs 1,199.75 and PNB was down by Rs 20.35 at Rs 735.

Bank of Baroda fell Rs 18.60 to Rs 735.65 and Canara Bank shed Rs 17.30 at Rs 403.55. ICICI Bank eased by Rs 16.45 to Rs 1,052 and Kotak Mahindra Bank lost Rs 10.40 at Rs 599.70. The losses of other constituents of Bank Nifty were in single digits.

With the headline inflation remaining ‘sticky’, RBI Governor D. Subbarao left the key rates — repo and reverse repo rates — untouched in the new RBI credit policy while cutting CRR by 25 basis points.

The repo rate remains at 8 per cent, at the same level that it has been for the past six months. This was in line with the hint thrown in its review of macroeconomic and monetary developments released yesterday evening that it may cut policy rates “down the line’’.

In doing so, the RBI chose to not oblige the Government expectations that it would cut rates in response to policy measures unveiled over the past month as well as the five-year fiscal consolidation plan released yesterday. The Government hopes to cut the fiscal deficit to 3 per cent of GDP over the next five years.

For the current fiscal, the Government has admitted that keeping the fiscal deficit to the budgeted 5.1 per cent would be difficult while 5.3 per cent was doable.

The RBI, has however, cut the Cash Reserve Ratio (the amount parked by banks with the RBI) by 25 basis points from 4.5 per cent to 4.25 per cent. This measure is expected to infuse Rs 17,500 crore liquidity into the system.

Last week Morgan Stanley said: “We believe that current macro indicators — including inflation, current account deficit, banks’ deposit growth and loan deposit ratios — do not really provide room for quick rate cuts. Moreover, drivers of inflation such as Government spending growth and rural wages also do not indicate any quick potential improvement in the inflation outlook.”

It also added that early cuts would increase the risks of renewed currency depreciation pressures.

Published on October 30, 2012
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