Mumbai: Stock market fell 0.7% on Thursday to its lowest close in more than two months as a new corruption scandal rocked the country, hitting shares of banks and other companies allegedly involved in exchanging bribes for large corporate loans.
Trade was volatile towards close as monthly derivative contracts expired on the National Stock Exchange.
The 30-share Bombay Stock Exchange index closed at 19,318.16 points, down 0.73%.
Money Matters fell 20%, Hindustan Construction dropped 10.9% and DB Realty fell 10%, making them some of the biggest%age losers.
All those companies were named by the Central Bureau of Investigation, which on Wednesday said it arrested eight officials from state-run listed companies, including the chief executive of LIC Housing Finance, for taking hundreds of millions of dollars in bribes to facilitate large corporate loans.
LIC Housing shares were the third-most traded amongst main stocks on the BSE, with a volume of about 8.3 million shares, close to 30 times their average 30-day volume.
Senior executives at state-run Punjab National Bank, Bank of India, and Central Bank of India were taken into police custody late Wednesday.
Shares in Punjab National and Bank of India fell more than 5%. The India Banking Sector Index closed down 1.4%.
“We believe the financial implications may not be materially large, as most of these loans would possibly be backed by real assets,” Citigroup said in a note.
However, Citigroup said the impact on perception/sentiment will be larger and will likely lead to some de-rating of the entire public banking sector.
LIC Housing Finance said 11.3% of its total loans are to builders and those loans are secured by underlying assets.
This is the third big Indian corruption scandal in the past few months. It comes on the heels of a telecoms scandal that forced India’s telecoms minister to resign and has paralysed the country’s Parliament.
Still, some analysts and fund managers are choosing to focus instead on the growth in Asia’s third-largest economy, slated to grow 8.5% next year.
“Anyone who has been an investor in India has to be familiar with issues like these,” said Vikas Pershad, Chief Executive of Veda Investments in Chicago.
“This would lead to preference towards quality stocks in the near term, but the larger picture is attractive. The long-term growth story is intact,” Pershad said.
The broader stock market was impacted with major stocks like top engineering and construction firm Larsen & Toubro and energy giant Reliance Industries leading the losses for the main index.
Larsen & Toubro shed 3.5%, while Reliance dropped 1.4%.
Market breadth was negative as declining shares were more than thrice the number of gainers, in a moderate volume of 417 million shares.
The 50-share NSE index declined 1.1% to 5,799.75 points.
Elsewhere, the FTSEurofirst 300 was barely changed at 4:00pm, while the MSCI’s measure of Asian markets other than Japan edged 0.1% higher.
Private lender HDFC Bank closed 1.2% higher at Rs 2,334 as UBS upgraded the bank to “neutral” from “sell” on Thursday, saying the bank is well positioned for net interest margin growth in a rising rate environment due to its strong deposit franchise.
SKS Microfinance rose 3.4% to Rs 752.65, as Execution Noble initiated coverage on the stock with a “buy” rating, citing its post-IPO balance sheet strength and geographically diversified portfolio.