Mumbai: Indian shares shed 1.4% on Tuesday, with energy giant Reliance Industries and financials leading the decline, as world stocks hit a 2-½ week low as investors were cautious ahead of bank repayments of emergency loan to the European Central Bank later this week.
Banks must repay 442 billion euros to the ECB on Thursday, leaving a potential liquidity shortfall in the financial system of over 100 billion euros.
Billionaire Mukesh Ambani-led Reliance Industries, which has the highest weight on the Sensex, dropped 1.9%, after rallying 3.5% over the two previous sessions.
The 30-share BSE Index closed 1.35% or 240.17 points lower at 17,534.09, its lowest close in two weeks, with 27 of its components closing in the red.
”Over the long term, the picture looks positive for Indian market considering the economic growth. (Fuel) deregulation move by the government will also help cut fiscal deficit,” said Jigar Shah, vice-president of equity sales at brokerage Motilal Oswal.
”In the near-term, we continue to follow global cues. The end to euro zone woes is not in sight as yet.”
The benchmark index has gained only 0.4% so far this year, even as foreign funds pumped in $6.5 billion in Indian equities.
Still, India’s main stock index has managed to perform better than some of its emerging market peers. Brazil’s Bovespa, is down 6.4% so far in 2010, while Shanghai Composite Index, one of the world’s worst performers, has shed nearly 26%.
The benchmark index is barely changed so far this quarter. Still it outperformed the MSCI’s broadest index of Asia-Pacific shares outside Japan, which is down 6.7% and is on course for its biggest quarterly drop since the post-Lehman selloff in the final months of 2008.
India’s Sensex has gained 3.5% so far this month and is on track to post its best monthly performance since March.
Economic growth in world’s second-fastest growing major economy after China and improving corporate earnings are likely to push Indian shares higher over the next one year.
The BSE 30-share index may rise to 19,000 points by end-2010, the median estimate in a Reuters poll of 20 market participants showed, while 17 forecast it rising to 21,000 by end-June 2011.
Top lender State Bank of India set its base rate for loans at 7.5%, as part of a new rule that requires banks to set their minimum lending rates.
The central bank introduced the new lending rate system or the base rate, to ensure that larger borrowers do not bargain for cheaper rates from banks, distorting their asset-liability management.
”Expectations of a rate hike are weighing on the bank stocks. They are not likely to see a meaningful rise any time soon,” said Shah.
On Monday, one of the deputy governors at the central bank talked down the possibility of a rate hike ahead of a 27 July monetary policy review by the central bank.
Fears of an off-cycle rate hike move had heightened after the government last Friday freed up petrol prices and raised prices of state-subsidised diesel, kerosene and cooking gas. which are expected to stoke inflation.
Prime Minister Manmohan Singh said on Tuesday the government would end controls on diesel prices. The move is seen exerting pressure on inflation
Top lender SBI shed 0.3% while leading private-sector rivals ICICI Bank and HDFC Bank dropped 2.3% and 2.7% respectively.
Vehicle maker Tata Motors shed 2.4% on fears of equity dilution and lower earnings per share after it approved raising $1 billion through equity and convertible bonds to reduce debt and for expansion.
Edelweiss Securities said Tata Motors remains a high risk, high return stock with its high financial leverage and potential equity dilution.
Metal producers declined as base metal prices fell in London as concerns about economic recovery weighed.
Non-ferrous metals producer Sterlite Industries dropped 1.4% while aluminium maker Hindalco closed 4.4% lower. Tata Steel , world’s eighth-largest steel maker by output, dropped 3.7%.
In the broader market, losers thrashed gainers in a ratio of 1.5:1 on a relatively better volume of 485 million shares.
The 50-share NSE index declined 1.5% to 5,256.15 points.
At 1029 GMT, MSCI world equity index was down 1.2% while the FTSEurofirst 300 index lost 1.8%.
AstraZeneca Pharma India jumped 20% to Rs1,207.05 on a voluntary delisting plan. It said on Tuesday its board has approved a proposal to voluntarily delist the shares of the company from stock exchanges.
Maytas Infra declined 2.4% to 212 rupees, after the construction firm said its FY10 sales slipped by more than a third to Rs10.98 billion.
State-run oil explorer Oil & Natural Gas Corp reversed losses and closed 0.1% higher at Rs1,305.95 after Prime Minister Manmohan Singh said the country will ease state controls on diesel prices.