MUMBAI: Reserve Bank of India’s decision to increase repo rate by 50 basis points and cash reserve ratio by 25 basis points has come as a surprise to many who were expecting the central bank to be less hawkish.
Stock indices, which were down close to 2 per cent, plunged soon after the news flashed across terminals. At 12:15 pm, Bombay Stock Exchange’s Sensex was down 501 points or 3.49 per cent.
Interest rate sensitive sectors were the worst hit. Any hike in interest rates directly impacts growth of these industries. BSE Realty Index fell 6.10 per cent to 4769.40.
Realty sector faces a two-fold problem. Rise in interest rates will result in poor sales, which has been on a decline since the beginning of the year and secondly, companies which have loans on their books will be hit again due to high rates. Analysts said, it will result in liquidity crunch for real estate players, virtually leaving them cashless.
The BSE Realty Index was down almost 7 per cent, dragged by losses in India Bulls Real Estate (-9.6%), Unitech (-8.41%), DLF (-6.14%) and Phoenix Mill (-5.62%).
“This hike in rates is an indication of a similar move ahead. Negative sentiment for the sector is likely to continue and realty stocks will find it difficult to perform in such circumstances,” said an analyst from a local brokerage.
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