RBI's Comments Wreak Havoc, Markets Down 2%

The RBI Governor Subir Gokarn's comment that there is still a high risk of inflation to the country has wreaked havoc in the markets, which have slid down by 2%. Gokarn also said that inflation may accelerate, which would leave very little room to cut the interest rates this year. This has come at a time when the rupee was showing some sign of recovery. After the news, it has again touched the 53 per dollar mark. By the end of the day, the BSE Sensex was down by 366 points and Nifty was down by 114 points, indicating heavy bearishness in the market.

The global indicators are also highly negative. In Asia, the Hang Seng and Shanghai have both declined in value, while Nikkei was trading up 0.69%. The European markets opened in the negative and have continued trading with losses. The political crisis in Greece has dragged the European stocks down. Dow Jones Futures is currently trading 69 points down at 12890.

Meanwhile, CLSA has said that the rupee will have more to adjust and the RBI may not be able to intervene beyond its limits. CLSA is bearish on the rupee, and seems to be expecting the rupee to touch the 55 per dollar mark. Earlier, UBS has also said that the rupee is most likely to hit the 56 per dollar mark.

The market movement today has surprised us. We expected the markets to surge after the government's announcement yesterday that the GAAR would be implemented in the next fiscal. Now, with this kind of a market, investors are trapped in a very disappointing scenario. Earlier, inflation was the risk, and hence, the RBI went ahead with a series of rate cuts. When the rates touched an unbearable mark, growth was hampered severely. Still, the government was seen not going in for reforms. The keenly awaited rate cut was also discounted by the markets before it actually happened. Now, the government is again concerned about inflation. In this scenario, we would only ask investors not to panic, and to keep holding stocks rather than selling them at a discount.

Amid this chaos, all the indices closed in negatives. The PSU index, which was up in the morning, lost all the gains and closed in losses. The CG index was a major casulty, closing with negative 3.44% returns. IT lost 3.09% as the demand seems to have declined. The interest-rate sensitive Auto, Bankex and Realty sectors lost over 1% each.

Coal India was the top gainer today, surging by 2.04%. GAIL India was also up by 1.63%. TCS and BHEL were the top losers, which lost 5.77% and 4.86% respectively. The county's top lenders, SBI, HDFC, ICICI Bank and HDFC Bank, lost between 0.78%-3.3% by the end of the day. The shares of DLF were up until mid-day, as the Finance Minister proposed to withdraw 1% tax at source on the transfer of immovable property.

There were very few gainers in today's market. MMTC held its gains for the whole day, and the stock closed with gains of 5.39%. Petronet LNG and TTK Prestige also closed in the green. The shares of Central Bank lost 12% as the bank posted a net loss of Rs 105 crore.

Power company CESC was up by 2.26% as it reported a net profit of Rs 266 crore in the Mar 2012 quarter against Rs 112 crore reported in the corresponding period last fiscal. The shares of CEAT were also sent up by 2.07% by investors after the company reported a net profit of Rs 41 crore. It has also recommended a divided to its shareholders.

The market sentiment was negative by the end of the day, as 61% stocks declined in value against 35% stocks that advanced and another 4% that remained unchanged.

With the RBI’s latest remarks, there is nothing to shelter investors for the moment. These remarks are fresh as of now, and may weigh on the stocks for a few days. Investors should trade very cautiously.