ICICI, DLF Lead Lenders, Real Estate Lower After Rate Increase

ICICI fell 2.4% to 686 rupees, its lowest in almost two years. DLF declined 3.8% to the lowest since it began trading in July. The Bombay Stock Exchange’s Bankex Index lost 3.3%, and the real estate index shed 4%.
The Reserve Bank of India unexpectedly lifted interest rates the second time in two weeks and told lenders to keep more cash in reserve after the surge in crude-oil prices pushed inflation to a 13-year high. The central bank also signaled it will keep raising borrowing costs.
Sampath Kumar, an analyst at Goldman Sachs Group Inc., stated, “Banks could raise lending and deposit rates by 75 to 100 basis points in response to the policy announcement. Increase in lending rates would likely adversely affect market expectations on loan growth, net interest margins and asset quality”.
The Reserve Bank increased the repurchase rate by 0.5 percentage point to 8.5%, the biggest move since 2000, and adjusted the cash-reserve ratio by a similar margin to 8.75%.
Before yesterday’s move, the central bank had raised the repurchase rate eight times in the past two and half years and increased the cash reserve ratio seven times since December 2006 to slow money supply and cool inflation.
The central bank’s monetary tightening had already led to a 43% slump in the Bombay Stock Exchange’s bank index this year, and a 60% plunge in the real estate index, outpacing the 30% drop in the nation’s equity benchmark Sensitive Index.

One Comment

  1. Posted July 17, 2008 at 5:39 am | Permalink

    The gloom over the realty sector is reflected in the stock prices of many companies. BSE Realty Index has been the worst performer so far in 2008, having shed more than 68.5% from its January peak. Analysts expect further erosion in valuations of realty stocks with the sector facing a slowdown, input costs rising, and little hopes of interest rates softening.

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