Mumbai: Shares fell more than 1.7% on Thursday, with private-sector lenders ICICI Bank and Housing Development Finance Corp leading the losses in anticipation of a rate increase next week.
Financial shares have been under pressure as rising rates due to persistently high inflation and slowing growth in Asia’s third-largest economy have raised the risk of asset quality and margins.
The Reserve Bank of India, which has raised rates a dozen times since mid-March 2010, reviews policy on Tuesday and economists polled by Reuters expect another increase.
“It looks very apparent there will be a rate hike and in anticipation of that there is a retreat and gains are being booked,” said Jigar Shah, senior vice-president KIM ENG Securities.
At 10:52am, the main 30-share index was down 1.73% at 16,790.39 points, with 28 of its components declining.
Sentiment was also weighed down by risk aversion across world markets ahead of a weekend meeting of European leaders to tackle the euro zone debt problem.
The MSCI’s broadest index of Asia Pacific shares outside Japan was down 2.21%, while Japan’s Nikkei traded 0.91% lower.
ICICI fell more than 3%, while mortgage lender Housing Development Finance Corp SHED 4.8%.
HDFC Bank fell 2% in tandem with broader trend, a day after beating market estimates with a 31.5% rise in quarterly profit.
Analysts also said investors were wary after monthly derivatives contracts expiry was brought forward by two days to 25 October due to holidays.
The benchmark has risen 3.8% since the end of September, but is down 17% this year as high borrowing costs squeezed corporate profits and a series of government scandals paralysed government policy making.
India’s No.2 motorcycle maker, Bajaj Auto , reversed early gains and traded 0.6% down ahead of its quarterly results. Analysts expect Bajaj to post a rise of 12% in profit, according to Starmine Professional Estimates.
The 50-share NSE index was down 1.47% at 5,063.5 points.
In the broader market, there were 2.5 losers for every gainer on total volume of 129.8 million shares.
Bajaj Finserv rose more than 7% after the company said late on Wednesday quarterly profit more than doubled.
Moser Baer India rose as much as 9.7% after media reports the company has resolved issues of compensation with a section of its associates at its Noida plant.