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Sensex Dives 206 Pts As Banks Hit

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Dragged by interest-rate sensitive sectors, the Sensex on 26 July fell to a six-week low by dropping over 206 points amid concerns that RBI may keep interest rates unchanged at its policy review next week and tepid earnings of ITC.

The BSE benchmark index, which had lost 72 points in the previous session, opened marginally higher but shares in capital goods, PSU, banks, FMCG and IT faced selling pressure throughout the session. The Sensex fell by 206.23 points, or 1.22 per cent to 16,639.82, a level last seen on June 7.

Led by Tata Motors which fell close to 4 per cent, 22 stocks including Tata Power, Wipro, Sterlite and SBI clsoed with losses in the 30-share index.

Shares of ITC, closed 2 per cent down, after its first quarter revenue at Rs 6,652 crore could not beat expectations.

On similar lines, the 50-share National Stock Exchange index Nifty lost 66.60 points, or 1.30 per cent to 5,043 with most of the interest-related sectors ending lower.

The RBI is expected to hold the repo rate steady at its review on 31 July, a Reuters poll showed, keeping pressure on the government to reduce the fiscal deficit and take steps to remove bottlenecks that are driving up food prices.

However, investors fear the government will hold off on widely anticipated fuel subsidy and retail reforms because of renewed opposition from party and coalition allies, which extended recent falls in state-run oil stocks on Thursday.

Market sentiment was also hit after provisional data showed foreign investors sold a net 3.72 billion rupees o f shares on Wednesday, marking a second day of net sales after strong buying earlier this month.

"RBI would maintain status quo on rates, but market would only be a tad disappointed because it's well understood that action is expected and should come from New Delhi," said Phani Sekhar, fund manager of portfolio management services at Angel Broking.

The 30-share BSE Sensex fell 1.22 per cent to 16,639.82 points, marking its lowest close since June 6.

The 50-share Nifty fell 1.3 per cent to 5,043.00 points.

The losses came despite gains in Asian shares, with the MSCI Asia-Pacific ex-Japan index rising 0.6 per cent.

The expiry of derivatives at the end of the session kept trading volatile, especially towards the end of the session.

Banks led decliners, with brokers citing heavily selling from foreign investors. Of 20 economists polled by Reuters, 19 expect the RBI to keep the repo rate on hold.

Analysts also don't expect the central bank to deliver a cut in the cash reserve ratio, or the amount of funds that lenders must keep with the RBI, which would have had a more direct benefit to the sector.

Private lender HDFC Bank fell 1.6 per cent, while State Bank of India fell 2.5 per cent.

Worries about when the government would raise diesel prices continued to route oil stocks. Oil and Natural Gas Corporation fall 2.6 per cent, while Hindustan Petroleum Corp lost 2.8 per cent, extending falls to a second day.

A slew of earnings disappointment also hit shares.

ITC shares lost 2.1 per cent after India's largest cigarette maker lagged market forecasts despite a 20 per cent jump in April-June profits, due to slower-than-expected growth in cigarette volumes.

JSW Steel, India's No. 3 steelmaker, fell 3.9 per cent after quarterly profit was half of what analysts had expected due to a foreign exchange loss and higher raw material costs.

Bharat Heavy Electricals Ltd shares fell 2 per cent despite posting a higher than estimate net profit because of concerns over slowing order flows.

A slew of mid cap stocks slumped by double digits on widespread speculation some investors were liquidating their positions because of margin call pressures.

Tulip Telecom fell 26 per cent, while Radico Khaitan, Pipapav Shipyard, Parsvnath Developers  and Everonn Education fell between 11-20 per cent each.