Mumbai: Indian shares snapped a four-day winning streak and dropped nearly 1% on Monday, weighed down by the central bank’s surprise rate hike late on Friday, with financials leading the decline.
The Reserve Bank of India raised its short-term borrowing and lending rates by 25 basis points each, citing intensifying inflationary pressures and a steady economic recovery.
“The (interest) rate hike was expected. It is just that it came a few days in advance,” said Rajen Shah, chief investment officer at Angel Broking.
The 30-share BSE Index closed 0.95% or 167.66 points lower at 17,410.57, after falling as much as 1.4% in early trade. Twenty two of its components closed in the red.The 50-share NSE index closed 1.1% lower at 5,205.20.
“I don’t think the rate hike action should be seen as a negative for the market,” said Sandip Sabharwal, CEO of portfolio management services at Prabhudas Lilladher.
“Market was technically overbought and it just needed a reason to correct,” he added, pointing to the recent steep rise in the benchmark.
Sensex had registered its sixth straight weekly gain last week, which was its longest streak of weekly gains since June 2009.
Foreign funds have poured more than $3 billion in Indian equities so far this year, with primary market issuance absorbing a share of it.
Leading lenders State Bank of India and ICICI Bank fell 0.9% and 2% respectively, while mortgage lender Housing Development Finance Corp shed 2.5%.
Private lender HDFC Bank bucked the trend, and climbed 1.1% to Rs1,838.45.
“HDFC Bank is the best sector stock in a rising interest rate environment, as they have low asset-liability mismatch, and a higher CASA (current account to savings account) ratio,” said Vaibhav Agrawal, vice-president of research at Angel Securities.
“Also, they do not hold many long-dated government securities in their portfolio,” he added.
Energy major Reliance Industries, dropped after rising more than 2% in two previous sessions.
The stock, which has the highest weight on the Sensex, closed 1.5% lower at Rs1,073.90.
Oil minister Murli Deora said it was “too late” for Reliance to join a consortium for Carabobo-1 oil block in Venezuela.
The central bank’s rate hike move also dragged down other rate sensitives such as auto makers and real estate companies.
Top vehicle maker Tata Motors and top carmaker Maruti Suzuki dropped 3% and 2.2% respectively, while top utility vehicle maker Mahindra and Mahindra declined 2.3%. Top-listed real estate firm DLF closed 3.6% lower.
Bharti Airtel rose as much as 2.4% after the top mobile operator said on Sunday it had tied up the entire funding for $8.3 billion for its planned buy of Zain’s African assets. The stock closed 1.4% higher at Rs316.30.
Bharti and Zain are in exclusive talks until 25 March, marking the third time the Indian firm has tried to get its hands on a meaningful African business after two failed bids for South Africa’s MTN.
In the broader market, declining shares led advancing ones in a ratio of 1.9:1 in a volume of 372 million shares, lower than Friday’s volume.
World stocks slipped on renewed investor concerns over Greece’s debt crisis and the RBI interest rate hike.
By 10:15 GMT, MSCI’s all-country world stocks index was down 0.5%, with the emerging markets sub-index shedding 1%.