Markets slump as rupee measures may hurt growth

Markets snapped three-day winning streak to end lower on Tuesday after the central bank's move to reduce rupee liquidity and an increase in short-term rates dashed hopes of rate cut in the near term thereby raising growth concerns.

The 30-share Sensex ended down 183 points at 19,851 and the 50-share Nifty closed 76 points lower at 5,955.

The rupee was trading higher by 57 paise to 59.32 to the dollar on selling by banks after the Reserve Bank announced a slew of measures to arrest the local currency's fall against the greenback.

There is a risk that the recently announced measures could backfire. India's growth is already very weak and tighter domestic liquidity will worsen the financial conditions for corporates and banks, hurting asset quality and the growth outlook, Nomura said in a note on Tuesday.

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Bank of America Merill Lynch on Tuesday revised India's GDP growth forecast lower to 5.5% for this fiscal from 5.8% earlier, as Reserve Bank's tightening measure is likely to push back lending rate cuts.

"We have cut our FY14 growth forecast to 5.5% from 5.8% earlier as RBI's tightening will push back lending rate cuts," BofA-ML said in a research note today.

Major Asian markets ended marginally lower except for the Nikkei which gained 0.4%. European share which had opened firm pared most of the early gains.

The CAC-40 and DAX were marginally down while the FTSE was up 0.1%.

Rate sensitive shares were among the top losers today with financials leading the decline. BSE Realty Index was the top loser among sectoral indices on the BSE down 5.6% followed by Bankex, Capital Goods, Metal, Consumer Durables and Auto among others.

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PSU banks witnessed profit taking on account of rising bond yields while some of the private banks dependent on short-term funding also witnessed profit taking after the central bank hiked short-term rates.

In the financials segment, ICICI Bank, HDFC, HDFC Bank, Axis Bank, Bank of Baroda, PNB and SBI ended down 2-6% each. Among private banks, Yes Bank slumped nearly 10% while IndusInd Bank ended nearly 8% lower.

Among the auto pack, Mahindra & Mahindra, Maruti Suzuki, Hero MotoCorp ended 1-2% lower.

Other Sensex losers include, L&T, Dr Reddy's Labs and Infosys among others.

FMCG majors ITC and Hindustan Unilever along with Reliance Industries and ONGC were among the top Sensex gainers.

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Among other shares, Crompton Greaves ended higher by 2.2% at Rs 91 on the commencement of buyback offer on Tuesday.

The offer closes on January 15, 2014.

Kohinoor Foods ended 20% up for second consecutive day after the Abu Dhabi-based Al Dahra International Investment LLC has decided to invest about Rs 112 crore (Rs 1.12 billion) in the company through equity shares allotted on a preferential basis.

Clariant Chemicals India has surged 11% to end at Rs 471 after the specialty chemicals maker said its board has approved the proposal to initiate the sale of land at Kolshet, Thane subject to the necessary approvals.

In the broader market, the BSE Mid-cap index ended down 1.5% while the Small-cap index ended 0.8% lower.

Market breadth ended weak with 1,421 losers and 873 gainers on the BSE.