The Hindu : Front Page : Sensex plunges by 558 points

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Wednesday, Jul 30, 2008
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Sensex plunges by 558 points

RBI move, global cues dampen sentiment

MUMBAI: The Bombay Stock Exchange reacted sharply to the Reserve Bank’s hawkish monetary steps to contain inflation on Tuesday with the Sensex plunging by 558 points on fears that banks would soon increase interest rates that could impact the industry and economy adversely.

Led by heavy selling in ICICI Bank, SBI, Maruti and DLF, the Sensex slipped below the 14000-mark and settled with a loss of 557.57 points from Monday’s close of 13791.54. Auto, realty, banking and consumer goods stocks fell sharply on concerns that a further rise in already high interest rates would eat into the business of these companies.

Among the sectoral indices, the BSE Bankex suffered a bigger loss of 8.31 per cent as bank stocks went into a tailspin after the RBI hiked the key short-term lending rate by 50 basis points and mandatory CRR requirement by 25 basis points to check rising inflation.

Besides, the apex bank indicated further tightening in the interest rate regime saying that fiscal developments needed a close monitoring in the wake of global market conditions and rising off-budget expenses such as higher government salaries and loan waivers.

Marketmen said the hike in lending rate had a cascading impact on the market sentiment, which was already dampened by weak global cues following fresh worries about the ailing financial sector after Merrill Lynch on Monday announced a huge $5.7 billion write-down due to bad debt.

They said fresh monetary measures initiated by the apex bank might have adverse implications for investment and growth. Besides banking stocks, other interest rate-related sectors such as realty, auto and consumer goods closed weak.

Private sector banks such as HDFC Bank tumbled by 8.71 per cent and ICICI Bank by 8.45 per cent.— PTI

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