The Bombay Stock Exchange’s sensitive index fell the most in six months on Monday, led by banks, after the government forecast the widest budget deficit in 16 years, increasing the risk of a cut in sovereign ratings. The rupee and bonds sank.
ICICI Bank Ltd and State Bank of India (SBI) led Indian lenders lower as the Budget omitted measures to open the industry and on concerns that the borrowing plan will reduce the value of bond holdings. Larsen and Toubro Ltd (L&T) lost 8.9% and Reliance Infrastructure Ltd sank 12% even as finance minister Pranab Mukherjee pledged increased spending on roads and power.
“Only some tinkering has been done, no big-bang reforms have been announced,” said A.N. Sridhar, a fund manager at Sahara Asset Management Co. Pvt. Ltd in Mumbai. “It appears the finance ministry got little time to decide on so many things which the market expected today, which did not come.”
The Sensex slumped 869.65 points, or 5.8%, to 14,043.40, the most since 7 January. The S&P CNX Nifty index on the National Stock Exchange, too, slumped 5.8%, or 258.55 points, to 4,165.70.
The rupee weakened 1.2%, the most in almost six weeks, to 48.49 against the dollar. The yield on the most- traded 6.07% note due May 2014 surged 27 basis points, the most since 17 March, to 6.5%, according to the central bank’s trading system.
ITC Ltd gained 3.1% to Rs197.70 after the budget left tobacco taxes unchanged. “No news is good news,” said Manoj Menon, an analyst with Kotak Securities Ltd. ITC is one of two stocks that gained on the Sensex on Monday.
ICICI Bank lost 10% to Rs679.70. SBI declined 8.6% to Rs1,653.50. HDFC Bank Ltd dropped 6.1% to Rs1,423.95.
The government had been expected to raise foreign direct investment limits in banks and insurers, Care Ratings said, while Axis Bank Ltd expected the foreign ownership cap to rise to 40% from 26%.
The fiscal deficit may rise to 6.8% of gross domestic product in the year ending 31 March, the most since 1994, Mukherjee told Parliament on Monday.
L&T fell 8.9% to Rs1,464.15. Jaiprakash Associates Ltd dropped 10% to Rs193.20. Reliance Infrastructure lost 12% to Rs1,130.75.
Reliance Industries Ltd slipped 6.6% to Rs1,893.15. Bharat Heavy Electricals Ltd retreated 3.9% to Rs2,100.50.