New Delhi: Indian shares fell 3.4% on Monday, its biggest drop in two weeks, after an interim budget failed to provide a much needed impetus to struggling sectors such as construction and autos.
Traders said the budget, which unveiled few populist measures ahead of a general election that must take place by May, disappointed investors who had been speculating on a stimulus plan to lift flagging growth.
“Because the economic situation is unprecedented, it was expected this interim budget would set an agenda for an economic direction,” said Sanjeev Patkar, director of research at Dolat Capital.
The main BSE stock index closed down 3.42%, or 329.29 points, at 9,305.45, its biggest one-day percentage point fall since 2 February when it shed 3.8%.
The 50-share NSE Nifty index closed 3.39% lower at 2,848.50.
Twenty-nine of its components dropped, while in the broader market losers outnumbered gainers by more than 2:1 on moderate volume of 278 million shares.
Bank stocks fell after acting finance minister Pranab Mukherjee proposed an increase in government borrowing, sending bond yields sharply higher.
Mukherjee said the fiscal deficit would rise to 6% of gross domestic product in 2008/09 from a planned 2.5% a rise that could shake investors increasingly wary of emerging markets.
He predicted a deficit of 5.5% of GDP in 2009/10 but implied this could rise as government spending may have to jump later this year to shield the economy from a global slump and stem job losses.
India’s economy is expected to slow to 7.1% in 2008/09, the slowest pace in six years and below 9% expansion last year.
Top lender State Bank of India fell 4.9% to Rs1,136 and rival ICICI Bank dropped 5.8% to Rs409.20.
Bond yields rose with the 2018 bond yield climbing to 6.42%, from 6.17% at the previous close on supply worries.
Leading carmaker Maruti Suzuki dropped 1.45% to Rs620.60 and top truck maker Tata Motors fell 1.3% to Rs136.10 as the government did not announce any measures to boost demand in the sector.
Energy group Reliance Industries, which has the highest weight in the index, dropped 5.2% to Rs1,319.05.