Mumbai: Indian shares fell the most in more than three-and-a-half months to close 2.8% lower on Wednesday, its lowest close since late February, as global stocks tumbled after Germany’s move to sharpen financial regulation raised doubts on global recovery, triggering a flight to safety.
Foreign funds have already pulled out around $770 million from Indian equities so far in 2010, and there were concerns the pressure could continue until the euro zone situation improves.
Top private lender ICICI Bank dropped as much as nearly 8% on concerns its proposed deal to buy small private sector Bank of Rajasthan was expensive.
Piramal Healthcare reversed early gains and closed 3.2% lower at Rs524.95 after the drugmaker said its founder has no proposal to sell any stake in the company.
The 30-share BSE index closed 2.77% or 467.27 points lower to finish at 16,408.49 points, its lowest close since 25 February. Twenty-seven of its components closed in the red. The 50-share NSE index closed 2.9% lower at 4,919.65 points, its lowest close since 25 February.
“Our market may be impacted in the short run due to the woes in Europe,” said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services.
“But from a long-term perspective, there are buying opportunities as our fundamentals are in place. The India story is intact,” said Rawal who manages $1 billion of wealth.
Rawal has a buy recommendation on banking and infrastructure stocks for his clients.
Germany, in an attack on the financial speculation on which it blames much of the euro zone’s debt crisis, on Tuesday banned naked short sales of euro-denominated government bonds, sovereign credit default swaps on those bonds and of shares in Germany’s 10 top financial institutions until 31 March, 2011.
European stocks were trading sharply lower with the pan-European FTSEurofirst 300 index of top shares declining 2.2% by 3:15pm.
World stocks, as measured by the MSCI All-Country index, were down 1.4% while the more volatile emerging markets index fell 2.6%.
India’s benchmark index has already shed 6.6% this month as the euro zone debt woes triggered foreign fund outflows, bringing down net inflows to $5.7 billion so far this year.
In 2009, record $17.5 billion purchases by foreign funds drove the index up 81%. It is down 6% so far in 2010.
“As the market weakens with further orderly falls, in commodity prices in particular, investors should accumulate capital goods, private sector banks and select consumer discretionary stocks,” Credit Suisse said in an India market strategy note.
ICICI Bank logged its biggest single-day fall since July 2009 and closed 7.2% lower at 825 rupees, its lowest close in three months after it agreed to buy Bank of Rajasthan, the shares of which hit the 20% upper limit at Rs119.40.
Based on the all-stock deal’s swap rate and Tuesday’s closing prices, ICICI would pay Rs188.42 per share, a premium of 89% to the small lender’s Tuesday close, valuing the business at $668 million.
“At a swap ratio of 1:4.7, the acquisition is expensive, at 5.0 times book or a $680 million cost to acquire 466 branches,” Credit Suisse analysts Ashish Gupta and Deepak Ramineedi said in a note.
“This is surprisingly high, as it had organically added 400 plus branches last year at a fraction of this cost.”
Energy giant Reliance Industries, which has the highest weight on the Sensex, closed 2.2% lower at Rs998.30.
Metal makers declined as industrial metal prices declined and outlook remained uncertain.
Non-ferrous metals producer Sterlite Industries and aluminium maker Hindalco dropped 7.3% and 3.9% respectively.
Tata Steel world’s eighth-largest steelmaker, closed 3.6% lower.
In the broader market, losers were more than thrice the number of gainers in a relatively lower volume of 381 million shares.