Mumbai: Indian shares fell 2.3% to their lowest close in six weeks, with banks leading the losses, as the central bank laid the groundwork for a rise in interest rates at its policy review even as it maintained its key rates.
India’s central bank tightened credit to the commercial property sector, lifted its inflation forecast and warned of the threat of asset price bubbles.
As expected, the Reserve Bank of India (RBI) left key interest rates on hold but surprised markets by removing emergency liquidity support measures that were implemented to protect Asia’s third-largest economy from the global downturn.
“A correction like this was in the offing, and the policy tone turned out to be the trigger,” said V.P. Chaturvedi, managing director of Tata Asset Management
Leading lenders such as State Bank of India and ICICI Bank fell after the central bank increased provisioning norms, and set a hawkish tone.
“The hawkish tone has pulled down interest rate sensitives like bank and real estate stocks,” he added.
The 30-share BSE Index closed 2.31% or 387.10 points lower at 16,353.40. It posted its largest single-day fall in 10 weeks. Twenty-three of its stocks closed in the red.
Foreign funds have poured in a net of $14 billion in Indian equities, leading to a rally of more than 69 percent so far in the year.
But they had turned net sellers for the previous three sessions.
“I think the policy has signalled concerns on inflation and price stability and going forward, the focus will be on reduction of liquidity and there will be tightening bias,” Chaturvedi added.
Top lender State Bank of India shed 4.5%, its biggest fall in 10 weeks, to Rs2,202.95, while private lender ICICI Bank tumbled 6.1%, its worst singe-day decline in more than three and a half months, to Rs836.25.
Real estate firms tumbled, after the central bank withdrew some liquidity measures and raised banks provisioning requirements for commercial real estate exposure.
The sector index dropped 6.24% to 4,046.04, its lowest close in more than two months.
Top-listed real estate firm DLF shed 6.6%, while rival Unitech declined 7.7%.
Telecom firms slid on expectations their earnings would decline sequentially, and on continued concerns over tariff wars and pricing pressures, analysts said.
Top mobile operator Bharti Airtel fell 7.1% to Rs306.60, while rival Reliance Communications slipped 6.6% to Rs208.25.
Tata Steel, the world’s eigth-largest steel maker slumped 7.3% to Rs501.30 after it posted a bigger-than-expected fall in its quarterly net profit.
Wipro, the country’s third-largest software services firm, led the gainers, as it beat estimates with a 21% rise in quarterly profit and forecast strong growth as it won new outsourcing deals and pricing pressures eased.
The stock closed 2.2% higher at Rs604.15, and the sentiment helped pull up other stocks in the sector as well.
“On a sector basis, Wipro’s positive outlook should help stocks to inch up in our view,” J.P. Morgan analysts Manoj Singla and Nishit Jasani said in a note.
“Overall we maintain our view of limited absolute share price upside near-term but remain fundamentally positive on a 9-12 month view,” J.P. Morgan added.
Top vehicles maker Tata Motors gained 1.6% to Rs547.75, after it beat forecasts with a second-quarter profit of more than double over last year.
“With improvement in the M&HCV (medium and heavy commercial vehicles) volumes and higher demand for its LCV (light commercial vehicle) products, Tata Motors is set to reap the benefit of the recovery in the economy,” Surjit Arora, analyst at brokerage Prabhudas Lilladher said in a note.
In the broader market, losers were more than five times the number of gainers, on a relatively moderate volume of 425 million shares.
The 50-share NSE index closed 2.5% lower at 4,846.70.