Mumbai: Indian shares fell 1.25% to their lowest close in a week on Thursday, as doubts about the pace of global recovery spooked world markets and a stronger dollar pushed investors away from riskier equities.
ICICI Bank, the country’s No. 2 lender, and energy major Reliance Industries, which together account for more than a fifth of the main index, led the fall.
“Global economic doubts and the strengthening dollar are not good news for stocks globally and India is no exception,” Jayesh Shroff, a fund manager at SBI Mutual Fund, said.
He expected market to stay volatile in the short term but remained bullish in the mid to long term as liquidity, which has been driving markets, is still flush.
The 30-share BSE index fell 213.13 points to 16,785.65, its lowest close since Nov. 12. All but three components fell. The 50-share NSE index shed 1.3% to 4,989.
The benchmark has risen about three-quarters this year, boosted by foreign portfolio inflows of $15.3 billion, but fresh doubts about the global economic recovery and a reviving dollar could push investors to other assets.
The dollar climbed further away from 15-month lows, forcing gold prices lower while global equities slipped from the top of their recent range. The dollar index, which tracks the currency against major currencies, was up nearly half a percent .
A six-month low in US housing construction in October and news that Mitsubishi UFJ Financial Group, Japan’s largest bank, will have to raise $11 billion in new shares to meet stricter capital requirements have underscored how the climb back from the worst economic crisis in generations will be slow.
Banks led losses as investors feared the government may delay financial sector reforms, especially the much anticipated rule changes for insurance and pension sector.
Bills take time to pass in India and progress in key sectors could drag. Any substantial move on insurance or pensions would send a signal of a renewed effort to modernise the economy.
Top lenders State Bank of India was down 2.2% at Rs2,280.45, to a two week low and ICICI fell 2.2% to Rs885.55, its lowest close since 9 November.
Reliance dropped 1% to Rs2,081.95 on concerns a weak global economy would hurt demand for oil and petrochemicals.
Analysts said foreign fund inflows could slow down as the year winds down.
Other emerging markets have also seen a surge in inflows, prompting some, including Brazil and Taiwan, to impose controls.
Finance Secretary Ashok Chawla said India was not planning to cap overseas borrowing by corporates, and while flows were being monitored they were not yet a concern.
In the broader market, 1,698 losers led 1,095 gainers, on relatively lower volume of 386.16 million shares.