Sensex hits two-month low on surprise rate hike
The BSE Sensex edged lower, falling for a third consecutive session on Tuesday, after hitting its lowest intraday level in two months as lenders such as Axis Bank were hit by an unexpected interest rate hike by the Reserve Bank of India (RBI).
The RBI raised interest rates by 25 basis points, or 0.25 per cent, in a bid to contain inflation, although it softened the concerns on economic growth by signalling it did not foresee any further near-term monetary policy tightening should retail prices ease as projected. (Read more)
The RBI had previously raised interest rates by 25 bps each in September and in October, but left policy on hold last month.
Indexes were also hit as Maruti Suzuki Ltd shares slumped 8 per cent, posting their biggest single-day fall in 1-1/2 years, after the automaker announced a new plant in Gujarat that would be owned by Suzuki Motor Corp.
That would mean Maruti Suzuki would enjoy only marketing margins from the production at the plant, analysts tracking the sector said.
"Markets could remain volatile on surprise rate hike and ahead of Fed meet outcome. Even RBI guidance seems unnecessarily dovish to me," said Phani Sekhar, fund manager at Angel Broking.
The Sensex fell 0.12 per cent, or 23.94 points, to end at 20,683.51, to mark its lowest close since December 17, 2013
The broader Nifty lost 0.16 per cent, or 9.60 points, to end at 6,126.25.
Both indexes earlier hit their lowest intraday level since November 28.
Shares are expected to remain volatile ahead of the conclusion of the Federal Reserve two-day meeting on Wednesday amid widespread expectations of a continued wind down in its monetary stimulus.
Overseas investors sold Indian cash shares worth of 13.34 billion rupees on Monday, the biggest single-day sale since August 27 amid turmoil in emerging markets.
Bank shares fell as much as 2 per cent after the rate hike but eventually ended down 0.3 per cent on the back of the RBI's more dovish statement.
Axis Bank Ltd declined 3.4 per cent, while HDFC Bank ended 0.7 per cent lower.
Among state-owned banks, Canara bank Ltd fell 1.8 per cent, while Bank of India lost 0.6 per cent.
Local search service provider Just Dial Ltd plunged 12.9 per cent as its October-December quarter earnings fell short of some analysts' expectations.
However among stocks that gained, Ranbaxy Laboratories Ltd rose 2.8 per cent on value buying after falling 26 per cent over Friday and Monday following a ban by US drug regulator on more of its products.
Copyright @ Thomson Reuters 2014