Sensex falls due to fed stimulus withdrawal fear

The BSE Sensex slumped over 300 points, while the Indian rupee traded with over 0.5 per cent cut on Monday as investors feared further rate hikes by the Reserve Bank following Friday's surprise. Analysts said RBI governor Raghuram Rajan may raise policy rates again after shocking markets by increasing them in only his first meeting, signaling he is willing to risk prolonging what is already the lowest economic growth in years in order to quash persistent inflation. "If he goes ahead and hikes further, which I think he might, then it might affect growth. But ultimately, if you have to bring down inflation, there is no other option," said A. Prasanna, economist at ICICI Securities Primary Dealership Ltd in Mumbai. Global brokerage Nomura now expects the RBI to raise the repo rate by another 50 basis points in 2013-14 to take it to 8 per cent. Not surprisingly, bank stocks led the declines, with the NSE banking index falling around 4 per cent. Other rate sensitive stocks such as realty, down 2.5 per cent, and auto, down 1 per cent, also pressured markets. PSU lenders like Bank of Baroda (down 5.5 per cent), Punjab National Bank (down 4.8 per cent) and SBI (down 4.4 per cent) were the top three losers on the 50-share Nifty benchmark. Private lenders Axis Bank and ICICI Bank also dropped around 4 per cent. Realty major DLF extended losses and traded down 4 per cent. DLF shares had plunged 12 per cent on Friday. Market analyst Sarvendra Srivastava said Friday's session was a minor setback for bulls and 6,150-6,200 is still in reckoning. Deven Choksey, managing director of KR Choksey told NDTV that this is a corrective phase, but it's unlikely that markets will fall beyond 5,750-5,800. "I don't see the rupee depreciating beyond a point. So, there's little risk of withdrawal of money from the system, especially after Fed's surprise move last week." As of 10.50 a.m., the Sensex traded 289 points lower at 19,975, while the broader Nifty declined 91 points to 5,921. The rupee traded down 0.5 per cent at 62.54 after earlier slipping to 62.60 per dollar.