Banking, fin, realty worst hit

Tuesday’s RBI decisions to hike two key policy rates are expected to affect stocks of companies from sectors like banking & financial services, and real estate more than any other sector since these sectors are more vulnerable to higher interest rates than others. However, given that most stocks from these sectors are already badly hammered since their January highs, market players do not see much downside from current levels.
On Tuesday, while BSE’s Bankex ended down 8.3%, Realty Index lost 5.5%. And since the beginning of 2008, the banking index has lost a little over 46% and the real estate index 62%. Market players said with RBI’s more hawkish view to rein in inflation by tightening the supply of money, interest rates are expected to go up. In a higher interest rate scenario people borrow less from banks. In a higher interest rate scenario, banks also have to make higher provisions for their losses in their bonds portfolio which are marked-to-market. A note from Religare Securities said that banks like UBI, Allahabad Bank, Indian Bank would be the most impacted on this account.