Rate hike fears haunt markets

Dec 14 2013, 03:19 IST
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SummaryWith the poll euphoria waning, the 30-share S&P BSE Sensex resumed lower and continued to slide.

Stock markets fell for the fourth straight session on Friday, with the Sensex posting its steepest weekly loss in a month, as faster-than-estimated inflation sparked expectations the Reserve Bank of India will raise interest rates in the coming week.

With the poll euphoria waning, the 30-share S&P BSE Sensex resumed lower and continued to slide, closing at 20,715.58, a drop of 210.03 points or 1 per cent. The rupee slipped 29 paise to end at 62.12 against the dollar. “We are very uncomfortable with the current level of inflation,’’ RBI Governor Raghuram Rajan told reporters in Kolkata yesterday. “If WPI inflation data also shows a material uptick then it would create an outside chance of 50 bps repo hike,” said Amar Ambani, head of Research at IIFL.

As banking stocks have largely priced in a 25 bps rate hike, further reaction will hinge upon any surprises in WPI data and the policy. “We expect the RBI to increase rates by 25 bps,” said Dipen Shah, head-Private Client Group Research at Kotak Securities. Bank of America-Merill Lynch concurred, saying, “We grow more confident of our call of a 25 bps RBI rate hike ... to seal the shift to repo mode from MSF mode in the money market.” HSBC, in a note, said, “... the main concern for the central bank will be inflation, which may compel it to raise the policy rate again next week by 0.25 per cent, to deliver on its hawkish promises and, through this, help anchor inflation expectations.”

Meanwhile, Japanese brokerage Nomura said, “We expect the (RBI’s) committee to recommend a move towards price stability instead of the current multiple indicator approach.”

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