China fears spook markets

Tue, 29 Jun Closing

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Indian markets closed on a weak note today, led by selling in metal stocks. Today's performance of Indian stocks was largely driven by what happened in China, where the markets crashed by over 4%. Today's was in fact the worst fall for the Indian markets in fifteen trading sessions. Despite the losses, however, Indian markets were still the best performer in Asia, where China (down 4.3%) and Hong Kong (down 2.5%) closed with deep cuts.

The BSE Sensex and NSE Nifty closed with losses of around 240 points (1.4%) and 80 points (1.5%) respectively. Mid and small cap stocks followed suit. The BSE Midcap and BSE Smallcap indices closed down by 0.6% each.

Metal stocks were the worst performers today. Key losers here included Hindalco, Tata Steel, and SAIL. More than any other factor, these stocks were impacted by weakness in Chinese markets where commodity stocks were the worst hit as well. Worries about the global economic recovery and European debt crisis weighed heavy on these stocks today. China itself is targeting to cool off its economy. And one way it is doing it is by tightening credit to industries. A Chinese slowdown we believe will negatively impact the demand and prices of commodities. And since most commodity prices are globally benchmarked, the impact will be felt in India as well.

Oil & gas stocks also closed weak today led by selling in heavyweights like Reliance, IOC, and GAIL. ONGC however managed to close in the positive. These stocks are largely mirroring the decline in oil prices, which have slid to under US$ 78 a barrel. Selling in oil & gas stocks was also owing to profit booking after the gains recorded since the government raised fuel prices last week.

PSU banking stocks closed mixed. While gains were seen in Union Bank and Indian Bank, selling pressure marked trading in IDBI Bank and SBI. Earlier during the day, SBI made an announcement that it has set its base rate at 7.5% per annum. This was an important announcement given that it would sort of define the levels at which other banks will set their respective base rates. As a matter of fact, the concept of base rate came into picture as the RBI thought that Indian banks do not set their lending rates in a scientific and transparent manner. The base rate will be the minimum rate at which banks can lend to their customers. This would restrict the sector from predatory pricing tactics. Anyways, once this rule comes into force on July 1, large companies that benefited from the so-called sub-prime lending rate, will have to pay at least the base rate.