Business | Markets
Indian shares stage slight recovery after rate shock
Indian shares snapped a five-day losing run yesterday and rose 0.8 per cent, after an early slide to a more than one-year low triggered short-covering, but there was little conviction about the recovery.
- Reuters
- Published: 00:03 June 26, 2008
Mumbai: Indian shares snapped a five-day losing run yesterday and rose 0.8 per cent, after an early slide to a more than one-year low triggered short-covering, but there was little conviction about the recovery.
Government bond yields retreated from a spike to seven-year highs yesterday as investors judged a central bank rate increase may be enough anti-inflation shock therapy for now.
The main 30-share BSE index ended up 113.49 points at 14,220.07, with 19 components rising. The benchmark, which had shed 10 per cent in the previous five sessions, fell as much as 2.6 per cent early to 13,736.01, its lowest level since May 11, 2007, on the aggressive moves by the central bank.
Bank shares fell, with number two lender ICICI Bank dropping as much as 4.3 per cent to its lowest since October 2006 on expectations loan demand would ease. It closed one per cent down.
Inflation outlook
Investors bought back stocks and debt on the view the initial selling after Tuesday's stiff central bank tightening was overdone, as well as some expectations that the various steps since mid-April could rein in inflation from 13-year highs above 11 per cent.
"If the rising inflation curve flattens out after this rise, then we will see the market bottoming out," said Arun Kejriwal, a strategist at research firm KRIS.
"But people are also quite aware that there could be more rate hikes if things don't come under control."
Lenders generally were expected to raise interest rates after the central bank lifted its key lending rate by half a percentage point to a six-year high of 8.5 per cent and increased reserve requirements for banks.
The central bank tightened policy after data late last week showed annual wholesale price inflation jumped in early June above 11 per cent. It was the second interest rate rise this month.
Growth
The finance ministry said the rate rise would moderate demand and inflation but the aim was to ensure the outlook for overall economic growth remained positive. The economy expanded nine per cent in the last fiscal year.
Industrialists were less sanguine, with automotive suppliers, real estate and consumer products makers concerned about the impact of rising credit costs on investment and demand.
"The entire industry will feel the impact as the cost of cars will go up now, as well as manufacturing costs," said Arvind Kapur, managing director of car parts maker Rico Auto Industries.
The benchmark 10-year bond yield jumped to 8.86 per cent in early trade, a level last traded in October 2001, from a close at 8.57 per cent on Tuesday before the rate move. It was at 8.72 per cent at 1020 GMT.
The 50-share NSE index rose 1.47 per cent to 4,252.65.
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