Fears of rate hike spook bourses

Sensex down by 176 points

Investors’ sentiments in D-Street also dampened as European stocks and US index futures fell. The market was volatile and both the key indices of BSE and NSE fell by nearly one per cent.

Interest rate sensitive banking and realty stocks led the decline as the RBI is seen raising its key lending rate by 25 to 75 basis points at its mid-quarter monetary policy review to tame inflation.

Abheek Barua, Chief Economist, HDFC Bank said that domestic growth is not exactly collapsing in line with the soft landing that is necessary to rein in demand-side inflationary pressures. “RBI is likely to hike its repo rate by 25 bps and is likely to follow up with two more rate hikes of 25 bps each in August and September before pressing the pause button,” he added.

While construction stocks fell, IT stocks also declined on recent weak US economic data and on continuing sovereign debt crisis in Europe considering US and Europe are the two key markets for Indian IT firms.

On Wednesday, BSE Sensex lost 176 points or 0.96 per cent to settle at 18,132.24 points, the lowest closing level since May 26, 2011. The NSE CNX Nifty lost 53 points or 0.96 per cent to 5447.50, also its lowest closing level since May 26, 2011.

The BSE Mid-Cap index fell 0.55 per cent  and the BSE Small-Cap index declined 0.59 per cent. The market breadth, indicating the health of the market, was negative with as many as 1,645 shares on BSE declined while 1,209 shares advanced and a total of 102 shares remained unchanged.

During the day, European stock markets edged lower as worries of Euro zone debt intensified after EU ministers failed to seal a deal on Greece. Many Asian stocks reversed initial losses on Wednesday as the key indices in South Korea, Taiwan, Japan and Indonesia were up by between 0.03 to 0.56 per cent.