The six-day winning streak on the bourses came to an end on Tuesday after the Reserve Bank of India (RBI) announced a hike of 50 basis points (bps) in cash reserve ratio (CRR) to be maintained by commercial banks. As a result the domestic equity bourses witnessed high amount of volatility before the 30-share Sensex ended the day at 19,783.51 points, losing 194.16 points (0.97%).
The market opened the day on a high note at 20,103.44 points, surged higher in the intra-day to touch an all-time high of 20,238.16 points, but soon retreated to touch 19,694.85 points due to uncertainty surrounding the mid-term credit policy review of RBI. Later the market recovered from its intra-day slump to close the day with a modest loss. On the other hand the broader S&P CNX Nifty of the National Stock Exchange (NSE) ended the day at 5,868.75 points losing 37.15 points (0.63%).
Deven Choksy, MD, KR Choksey Securities, said, ?The RBI has taken a two-step approach. They have hiked the CRR mainly to contain inflation as it is expected to rise during the festive season. If inflation is contained, RBI is likely to reduce the repo rate probably in the next review meeting in November. Market fell mainly because of profit booking in auto sector stocks, where positions were built up in anticipation of a reduction in interest rate. The mood, however, is still positive, with high level of optimism prevailing about cut in interest rate by US Fed reserve in its meeting on October 31.?
Ajay Bagga, CEO, Lotus India AMC, said, ?Three big trends are on in the market. One being that the global cues are strong, equity markets are bouncing back, and India is getting resultant liquidity which is driving the markets. India?s PE re-rating is on, investors are comparing the consistency of the high growth Indian story with China and re-rating the Indian markets PE upwards. Hence as against the earlier earnings expansion, PE expansion has started off in the Indian markets Adjustment of India?s weightage in the Global Emerging and Asia Funds, India has been underweight, this is being corrected in a big way, with a lot of rotation from the Chinese markets into the Indian markets as well?.
Auto sector stocks, which had already been feeling the heat of low sales growth figures due to a spate of interest rate hike by RBI, was the most affected on Tuesday.
The BSE Auto Index fell by 176.54 points (3.12%) to close at 5,479.89 points. BSE banking index however, recovered from their days low of 10,417.81 points to close the day at 10,550.09 points down by 99.62 points or 0.94%. As per the provisional figures released by stock exchanges, FIIs were net sellers to the tune of Rs 389.12 crore on Tuesday.