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Sensex tanks 400 points due to CRR hike
By siliconindia
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Tuesday, 12 December 2006, 18:30 IST
Mumbai: After clocking the second fastest 1,000-point rise in its history and spiking briefly past 14,000-point mark, the Bombay Stock Exchange crashed 400 points yesterday. This incidentally was its seventh-largest intra-day fall.
The Sensex closed at 13,399.43, down 2.9 per cent from the previous day. The National Stock Ex- changeâs Nifty mirrored the BSEâs movement, losing or 2.84 per cent to close at 3,849.50 points. Around 
1.73 lakh crore of investor wealth was lost, with stocks of all leading companies trading in the negative zone.
The fall has been attributed to the fear of a growth slowdown triggered by the Reserve Bank of Indiaâs (RBIâs) move to tighten money supply by increasing the cash reserve ratio (CRR). CRR is the money various banks have to keep with the RBI in the form of cash and deposits. The worst hit was the banking sector.
"Banking stocks reacted to the RBI's policy and the trend percolated to all the sectors," said Sandeepa Arora, Vice-President, India Infoline a CRR hike would cut the funds banks could lend, thereby potentially affecting earnings. This factor led to a tanking of the banking stocks.
Industry sources said that the other reason for the downfall of the market might have been sell-offs by foreign institutional investors (FIIs), whose moves are closely shadowed by domestic players. FIIs were reportedly net sellers of about 106 crore in individual stock futures on Friday. Not a stock in the BSE Sensex gained today. SBI was the biggest loser, down 8.18 per cent at Rs 1,242.75. ICICI Bank lost 6.54 per cent at 819.40.
Analysts, though, point out that Mondayâs fall was a good thing. âTechnically, the market was at a high valuation, and a correction was expected anytime,â opined Lalit Thakkar, director (research) Angel Broking.
1.73 lakh crore of investor wealth was lost, with stocks of all leading companies trading in the negative zone.
The fall has been attributed to the fear of a growth slowdown triggered by the Reserve Bank of Indiaâs (RBIâs) move to tighten money supply by increasing the cash reserve ratio (CRR). CRR is the money various banks have to keep with the RBI in the form of cash and deposits. The worst hit was the banking sector.
"Banking stocks reacted to the RBI's policy and the trend percolated to all the sectors," said Sandeepa Arora, Vice-President, India Infoline a CRR hike would cut the funds banks could lend, thereby potentially affecting earnings. This factor led to a tanking of the banking stocks.
Industry sources said that the other reason for the downfall of the market might have been sell-offs by foreign institutional investors (FIIs), whose moves are closely shadowed by domestic players. FIIs were reportedly net sellers of about 106 crore in individual stock futures on Friday. Not a stock in the BSE Sensex gained today. SBI was the biggest loser, down 8.18 per cent at Rs 1,242.75. ICICI Bank lost 6.54 per cent at 819.40.
Analysts, though, point out that Mondayâs fall was a good thing. âTechnically, the market was at a high valuation, and a correction was expected anytime,â opined Lalit Thakkar, director (research) Angel Broking.