Jan. 5: The Sensex and Nifty skid on the bank and commodity stocks that were in trouble and saw heavy selling. The bank index on the Bombay Stock Exchange was down 287 points or 2.19 per cent. Every frontline and mid cap bank stock was in the red.
The European markets which opened weak in the afternoon, added further to weakening the Sensex. Rising interest and deposit rates have shaken the confidence of the investors who feel that lending rates can never go as high as deposit rates and this would affect the margins of banks. “Treasury income also will fall,” said Mr Ambareesh Baliga of Karvy Stock Broking.
“With bank stocks down all other interest-sensitive sectors like realty and auto were down on fears that RBI would hike interest rates when it declares its monetary policy on January 25,” he said.
Mr Alex Mathews of Geojit BNP Financial Services says that profit booking in commodity stocks that had run up following the rise of commodities on the London Metal Exchange led to a correction in these stocks on Wednesday.
PSU banks with a large portfolio of bonds have also lost favour with investors because with interest rates going up bond yields fall. Volumes are even down as investors have less money to put in the stock market because of inflation. He said many people have not been able to pay their monthly installments of Rs 10,000 under the SIPs, he said.
Defensives such as IT and FMCG bucked the negative trend amid the flight to safety. The near-term outlook “remains hazy and one cannot rule out more declines, though the same is unlikely to be a steep one,” said Mr Amar Ambani, of IIFL. However, Mr Baliga opines that the weakness could continue for another day or two before turning positive. The trigger could be the corporate results expected from next week.