Benchmarks plunge on 50 bps hike in repo and reverse repo rates

The benchmark equity indices made further inroads into the negative territory during the previous one hour of trade and hit new intraday low as selling intensified among rate sensitive stocks after the Reserve Bank of India (RBI) in its first monetary policy review of 2012, raised repo and reverse repo rates by 50 basis points (bps), thus breaking its calibrated approach. The repo rate now stands at 7.25%, while reverse repo rate is at 6.25%. However, the CRR has been left unchanged at 6%. Meanwhile, global cues were also not supportive as most of the Asian markets were trading in the red and US index futures too were trading in negative territory. Back home, all the sectoral indices on the BSE were trading in the red. Realty, banking, auto, capital goods and consumer durables segments are the major laggards in dragging the markets into the red. The mid-cap and small-cap stocks are under severe pressure, and mirroring their fall, the BSE Mid-cap and Small-cap indices have now lost 0.36% and 0.37%, respectively. The market breadth on the BSE was in favour of declines in the ratio of 1322:1040 while 115 scrips remained unchanged.

The BSE Sensex plunged 144.61 points or 0.76% at 18,853.41. The index has touched a high of 19,024.95 and a low of 18,837.46, respectively.

The BSE Mid cap and Small cap indices declined 0.36% and 0.37%, respectively. 

All the sectoral indices on the BSE were trading in the red. Realty down 1.41%, Bankex down 1.19%, Auto down 1.06%, Capital Goods (CG) down 0.88% and Consumer Durables (CD) down 0.71% were the major losers on the BSE sectoral space.

Sterlite Inds up 1.69%, Infosys up 0.42%, BHEL up 0.24%, Reliance Infra up 0.15% and Tata Power up 0.02% were the only gainers of the Sensex.

On the flip side, M&M down 1.75%, L&T down 1.66%, Bharti Airtel down 1.45%, HDFC Bank down 1.45% and DLF down 1.39% were the major losers on the index.

India's fuel retailers are set to lose record money in the current financial year until there is a dramatic decline in international crude oil prices or the domestic retail prices of fuels are hiked sharply. With none of these looking to happen soon, the oil marketing companies (OMC) are looking at serious losses for FY12.

In the last financial year, OMCs lost Rs 78,000 crore owing to selling petrol, diesel and kitchen fuel below cost. A third of these under-recoveries were borne by upstream companies including ONGC, GAIL India, and Oil India through supplying cheaper crude. Fuel retailers also got Rs 38,386 crore as government subsidy for first three quarters and are still waiting for the fourth quarter subsidy, which would be much higher. This is because India's crude oil basket reached $101 a barrel in Q4 compared with around $78 a barrel in first three.

Going by that, under-recoveries are set to surge further in current quarter where crude has continued to remain close to $120 a barrel so far. According to estimates prepared by the Kirit Parekh committee, at current levels of crude prices, OMCs' losses will surge to around Rs 1,80,000 crore over the full fiscal year, which by any means is beyond what the government can manage with its current finances. For a general idea, at this level, under-recoveries will be around 3% of India's gross domestic product and nearly 20% of Indian government's full fiscal revenue.

Even if the upstream companies bear 33% of the losses, the downstream companies are not in position to bear even 10% of such a mammoth figure. The rest will have to be borne by the government. Since the government does not have resources to put in such a huge amount of subsidy, it will have to hike retail fuel prices at some stage to partially pass on the higher crude prices through higher retail fuel prices.

The S&P CNX Nifty shed 43.15 points or 0.76% at 5658.15.  The index has touched a high and a low of 5710.80 and 5653.65, respectively.

The top gainers of the Nifty were Sterlite Inds up 1.72%, Infosys up 0.48%, BHEL up 0.26%, Kotak Mahindra Bank up 0.16% and NTPC up 0.14%.

On the flip side, M&M down 1.81%, L&T down 1.79%, Power Grid down 1.74%, PNB down 1.69% and Reliance Capital down 1.58% were the major losers on the index.

Rest of the Asian markets were trading mostly in the red. Jakarta Composite declined 0.86%, KLSE Composite dipped 0.24%, Straits Times dropped 0.67%, Seoul Composite plunged 1.13% and Taiwan Weighted shed 0.69%; while Shanghai Composite added 0.27% and Hang Seng advanced 0.18%.

Stock markets in Japan remained closed today on account of Japan's annual Golden Week holiday.

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