RBI shocker for the markets!

Tue, 26 Jul Closing

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Interest rate hikes continued to loom large on the minds of investors during the closing stages as well. In view of this, indices in the Indian stock market declined further and closed the day strongly in the negative. While BSE-Sensex lost to the tune of around 350 points, decline on the NSE-Nifty came in at around 110 points. BSE-Midcap and BSE-Small cap indices also headed southwards, registering losses to the tune of 1% each. Only one stock on the Sensex managed to close the day in the positive.

Major Asian indices however closed the day in the positive whereas Europe is trading in the red currently. The rupee was trading at Rs 44.2 to the dollar at the time of writing.

Today's decline was largely attributed to RBI's monetary tightening on yet another occasion, whereby it raised repo and reverse repo rates by another 0.5% each. This is quite likely to impact GDP growth and thus, the negative feedback from investors. The RBI has already revised GDP growth estimates from 8.5% to 8%, while credit growth has been projected at 18% YoY instead of earlier estimates of 19% for FY12. In fact we will not be surprised if more such downward revisions follow.

Asian Paints, India's largest paints company, announced its quarterly today. The company has put up a good show. Its bottomline grew by 25% YoY on the back of a 29% growth in topline. Although the company reported a slightly lower profit growth on a consolidated basis, it still came in at a decent 19% YoY. Total revenue for the consolidated entity jumped 24% YoY. The company's operating margins suffered a drop of 1.6% for both the standalone as well as consolidated entity. Company's margins suffered on account of steep rise in raw material costs, which it was not able to pass on fully. However, overall, the company's performance can still be considered impressive. With RBI going in for another steep hike, whether the momentum will be maintained remains to be seen. The stock closed higher by 1% today.

Voltas, the engineering major, was another stock that closed strong today albeit only marginally. The stock garnered investor attention seemingly on the back of news that Voltas Material Handling, a JV between Voltas and German's KION group has set up a new plant in Pune at an investment of Rs 120 m. The new facility will manufacture diesel and electric forklift trucks. The output in Pune is likely to match that of the JVs Thane plant from where it produced 1,700 forklifts last year. It should be noted that recently, the company has transferred its material handling business to the above mentioned JV company and had received a consideration of Rs 1.1 bn for the same.