RBI acts as Sensex reacts

The Indian stock markets have taken it on their chin. They started the day down almost 1,000 points with the benchmark BSE-30 and NSE-50 indices trailing the rout seen in other key Asian markets. However these have rebounded following a CRR cut by the RBI. Stocks in Japan, Hong Kong and Singapore are currently trading down by 10%, 7% and 7% respectively.

The Sensex and Nifty are currently trading down by almost 460 and 200 points respectively. The BSE-Midcap and BSE-Smallcap indices are trading lower by 6% and 5% respectively. The rupee is trading at 49.02 to the dollar.

In a move to tide over the liquidity crisis facing the Indian banking system, the RBI has slashed the CRR (cash reserve ratio) by 1.5%. However, this deduction is done in replacement of the 0.5% cut that was announced on October 6 (Read the RBI release on CRR cut). As such the total cut of 1.5% includes the earlier deduction. The CRR will now stand at 7.5% effective October 11 2008. The cut is expected to release Rs 600 bn into the banking system and is expected to soothe nerves. The Indian banking system has been severely starved for liquidity on account of the ongoing crisis in the US and Europe. Some banks have even ceased giving out loans and some are borrowing from their peers at very high rates. Stocks from the banking sector are trading weak currently. Major losers include ICICI Bank(down 9%), IDBI Bank (6%) and Yes Bank (5%).

Technology stocks are trading deep in the red currently, led by Infosys (down 6%) and Satyam (down 8%). Weakness in Infosys is despite a strong set of results announced by the company earlier this morning. The company has recorded sales and profits growth of 12% QoQ and 10% QoQ respectively for 2QFY09. What is more, operating margins have expanded to 33.1%, from 30.5% in 1QFY09. While citing a cautious outlook on the offshoring opportunity from the US, the management has maintained its guidance for FY09. The company added 40 new clients and 5,900 employees during the quarter.