The Hindu Business Line : CRR hike impact: Analysts expect shaky start today

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Mumbai Feb. 13 Stock markets may dip on Wednesday on the back of the hike in the cash reserve ratio (CRR) by the RBI. Market experts point out that bank stocks would be hit most, pulling down the Sensex.

The RBI hiked the CRR by 50 basis points to 6 per cent. "The CRR hike is an attempt to curb inflation and loan growth. It will have a direct impact on increase interest rates across sectors. Post the fall in markets for the two trading days of the week, volatility in markets will continue," said Mr Amitabh Chakraborty, President - Equity, Religare Securities.

Market men had anticipated the CRR hike. "The hike was anticipated as RBI had hinted at the same in the credit policy. Tomorrow, there will be a knee-jerk reaction and markets are expected to be volatile till the budget," said the head of institutional sales at a leading broking firm.

"Markets are expected to open on a weak note on Wednesday as people will not know the extent to which interest rates will go up," said a research analyst.

Negative impact

"There will be a negative impact on the markets but they will not fall as much as they would have had the markets been strong," said Mr Krishna Kumar Karwa, MD, Emkay Shares and Stock Brokers.

Liquidity crunch will affect most sectors. Mr Lalit Thakker, Director-Research, Angel Broking, said, "Rs 14,000 crore of liquidity will be sucked out of the system post the hike. When rates go up, it acts as a dampener to the market."

Markets have been trading in the negative for the past three days and analysts anticipate the hike as an excuse for markets to tumble further. "On the whole, however, market sentiment was not looking good; so stocks across most sectors will be hit," said Mr Shailendra Jindal, CEO, Mehta Financial Services Ltd.

Sectors across the board could be hit but banking and manufacturing sectors would suffer the most. "Bank stocks will be hit as the need to hike interest rates will affect the loan growth and the margins of banks," said Mr Chakraborty.

"It will negatively affect the market because apart from bank stocks, realty, cement stocks and capital goods stocks will also be affected as there are synergies between these sectors," said Mr Thakker.

In the long-term, analysts expect markets to bounce back. "If there is no slowdown in the economic growth and corporate profitability is not affected, markets should stabilise and bounce back. However, it will take time for this to happen, but long-term prospects do not seem affected," said an analyst.

On Tuesday, the BSE Bankex index closed down 96.09 points or 1.31 per cent at 7,266.74 points.

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