Markets slump on fear of rate hike

■ AN IMMEDIATE rate hike may be premature given the lack of clarity on factors like the monsoons, the minimum support price and fiscal risks, says Icra MD Naresh Takkar.

The equity markets extended their fall for the second straight day dragged down by strong selling in financial sector stocks as RBI started its three- day monetary policy meeting.

While one section of the market participants are expecting the RBI to hold rates, others are seeing a probability of a 25 basis points hike in repo rates.

The Nifty slumped 67.70 points or 0.63 per cent to end the day at 10,628.50 while the Sensex dropped 215.37 points or 0.61 per cent to close the session at 35,011.89. However, the fall was much steeper in the intra- day trade as the Nifty fell 151.95 from its days high and the Sensex gave up close to 600 points from its intra- day high.

“There has been limited communication from the central bank since the April policy meeting. This makes the policy review on June 6 important to gauge the RBI’s assessment of recent market volatility and hardening in borrowing costs. We expect the Monetary Policy Committee to sound hawkish, with a rising probability that they will vote for a pre- emptive 25 basis point rate hike this week, to maintain financial stability and contain secondround inflationary impact from higher oil prices and a weaker rupee. Last week’s firm growth report adds to RBI’s comfort on the growth outlook,” said Radhika Rao, economist at DBS Bank.

HDFC Bank was the biggest loser among the Sensex pack down 2.99 per cent while the shares of SBI, ICICI Bank and Kotak Mahindra Bank lost over 1 per cent each on Monday.