Rate hike takes a toll

Mon, 23 Sep Closing

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As the unexpected repo-rate hike from the Reserve Bank of India sinks in, the concerns over slowdown in economic growth has exacerbated. Extending the continued weakness, the Indian equity markets have closed on a weak note today with continued selling pressures and subdued buying activity. Stocks across the board ended on a weak note with the interest-rate sensitive sectors such as Banking, Realty, Auto and capital goods' being largely battered. Sectors such as Consumer durables and IT have witnessed resilience and closed the day on a positive note. Union bank of India turned out to be the biggest loser today. The BSE Sensex slipped and closed down by 381 points while the NSE-Nifty was seen down by 129 points. The BSE Mid Cap and the BSE Small Cap indices closed on a poor note and were down by 1.4% and 0.5% each.

The global markets have also fared poor with most of the Asian indices closing on a weak note and the European indices opening on a weak note too. The rupee was trading at Rs 62.75 to the dollar at the time of writing.

With the rate hike announcement coming from the new Governor, most of the banking stocks today closed on a weak note and were down in the range of 4% to 7%. According to a leading financial news medium, after a pretty long time, the bank credit has jumped to a 17-month high in the week of September 6 as the borrowers made a rush. With commercial papers becoming pricey, the demand for bank credit has picked up. Much of the loan growth came post the liquidity tightening measures announced by the Reserve Bank of India (RBI) to shore up falling rupee. However, this would imply higher likelihood of base rates for banks going up in the near future. Also, given the overall slowdown in the economy, some bankers are of the opinion that this loan growth may not be sustained over a longer period. While the large and big corporate credit pickup is still slack, the retail, agri and small and medium enterprises credit demand continues to grow.

Except few such as Reliance Power, Neyveli Lignite and GVK Power and Infra, most of the Power sector shares have ended the day in red with Tata Power and NTPC facing the maximum selling pressures. According to leading financial news daily, Tata Power, the country's largest private power generator, has signed an agreement with EESL for energy efficiency and conservation initiatives. EESL (Energy Efficiency Services Ltd) is a joint venture of public sector units of the Ministry of Power. Tata Power and EESL have signed an MoU (Memorandum of Understanding) to carry out collaborative activities and partnerships in the field of Energy Efficiency and Demand Side Management (DSM). The MOU is expected to provide a framework and strategy for collaborative activities and partnership for energy efficiency and conservation. Through EESL, Tata Power is expected to facilitate successful energy efficiency projects.