Mumbai: Indian shares erased early losses and nudged 0.3% higher on Friday after the Reserve Bank of India kept key interest rates unchanged, but still posted their worst monthly loss in three months.
The BSE 30-share index Sensex fell 6.3% in January, its biggest drop since a 7.2% slide in October 2009. For the week, it was down nearly 3% after losing 4% the previous week.
Bank stocks led the pull back after the market fell as much as 2% at one stage.
The Reserve Bank of India (RBI) kept short-term interest rates steady at its quarterly policy review on Friday but lifted banks’ cash reserve requirements by more than expected and warned of mounting inflation.
“There were some expectations built that the RBI could hike rates at the policy, after we saw yesterday the food inflation data had accelerated,” said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services.
“Since, that didn’t take place, the policy seems to be better than expectations,” he said.
ICICI Bank gained 5.3%, its biggest one-day rise in more than 4-“ months, to Rs830.40. Bigger rival State Bank of India firmed 2.7%, while No. 3 lender HDFC Bank added 2.3%.
The BSE barometer closed up 0.31%, or 51.09 points, at 16,357.96. Thirteen of its components gained.
“The next key event to watch for is the budget. I am optimistic that overall 2010 should be good, on the back of economic growth and corporate earnings growth,” Rawal said.
Export-driven outsourcers, which get around half of their revenue from the United States, dropped on continued concerns over the order flow from US banks.
Infosys Technologies and Tata Consultancy Services (TCS) shed 0.7% each, while Wipro dropped 3.8%.
Metal makers Sterlite Industries and Hindalco dropped 1.4% and 0.5% respectively, hurt by a sharp fall in base metal prices.
A firm dollar and concern over the pace and scope of credit tightening in China drove Shanghai copper down nearly 4%, following a drop in London prices in the previous session.
Tata Steel, the world’s eighth-largest steel maker by output, fell 2.8% to Rs569. It had rallied 4.8% on Thursday after forecast-beating third-quarter results.
“Valuation looks expensive, coupled with structural demand concerns in the European market and poor returns on a long-term basis,” brokerage Prabhudas Lilladher said in a note.
It maintained its “reduce” rating on the stock.
In the broader market, 1,484 gainers led 1,370 losers on volume of 442 million shares, below last week’s daily average of 534.4 million shares.
The NSE 50-share index Nifty closed 0.3% higher at 4,882.05.