Sensex dips 387 points on credit policy review

Realty sector stocks take a beating

The BSE benchmark Sensex was bearish in opening and came under intense selling pressure after the unveiling of credit policy, which asked banks to park more money in government securities and raised inflation forecast.

Metal, banking and consumer durables shares were battered and their indices closes sharply lower in the range of 3 to 6 per cent. The 30-share index closed the day at 16,353.40, a steep fall of 387.10 points or 2.31 per cent from its last close.

In its monetary policy review, RBI increased statutory liquidity ratio by 100 basis points while maintaining status quo in key policy rates and CRR. It also revised upwards its inflation forecast to 6 per cent by this fiscal-end.

Brokers said banking shares were another big casualty of credit policy as many fear RBI’s move to tighten credit flow to real estate sector would have an adverse impact on bank shares as well. They said though the apex bank left key policy rates and the cash reserve ratio unchanged, investor sentiment was impacted as a one per cent hike in SLR is expected to drain liquidity by up to Rs 30,000 crore from the system.

The 50-share Nifty of the National Stock Exchange also fell by 124.20 points or 2.50 per cent to close at 4,846.70 from its previous close. RBI had pumped in massive liquidity in the banking system in the past one year to help revive the domestic economy in the light of global financial crisis. Weakness in its Asian counterparts also had a negative impact on the market sentiment.
The small-cap and mid-cap stocks bore the brunt of selling with the respective indices falling sharply by 4.42 per cent and 3.69 per cent.  Metal stocks beat a haste retreat after a recent rally.

Realty shares

RBI on Tuesday took a stricter view of the real estate sector while reviewing its second quarter review of the Monetary Policy which caused ripples in Dalal Street with most of the realty stocks endeing  in the red.

Even though the apex bank kept key policy rates unchanged, it took a stern  view of the real estate sector and raised the provisioning requirements for loans to commercial real estate from 0.4 to 1 per cent.  In effect, realty sector would no longer enjoy the leverage it enjoyed and makes loans for the real estate lenders as banks will try to impose an additional charge to recover their provisions.

The RBI policy statement said that, “In view of large increase in credit to the commercial real estate sector over the last one year and the extent of restructured advances in this sector, it would be prudent to build cushion against likely non-performing assets (NPAs).  Replying to a related question, RBI Governor Duvvuri Subbarao said price adjustment has not taken place in the commercial real estate space.  When quizzed further, he said: “They (the prices) have not fallen enough.”

The BSE Realty index plunged 6.2 per cent to 4,046. Earlier in the day the index opened at 4,264 and touched a low of 3,974.