Mumbai: Indian shares were battered down nearly 1% on Tuesday on fears of a quick-succession rate increase by the central bank following its quarter-point hike in key rates, as it fights sticky inflation.
The Reserve Bank of India (RBI) raised interest rates by 25 basis points, as expected, to clamp down on resurgent inflation, warning higher food prices could become entrenched if steps to boost output are not taken.
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“Clearly, the RBI stance indicates that there are more tightening on the way,” said Sujan Hajra, chief economist at brokerage Anand Rathi.
“And our sense is that in the current financial year we will see another 25 basis points hike, and perhaps in the first quarter of FY12 another 25 (bps).”
Interest rate sensitives— BSE banking index, BSE realty index and BSE auto index— dropped between 1.1% and 2.3%.
The 30-share BSE index shed 0.95% or 181.83 points to 18,969.45 points, with 19 components closing in the red.
Foreign funds have pulled out around $892 million from Indian equities so far this year, with the main index declining 7.5%.
Leading lenders State Bank of India, ICICI Bank and HDFC Bank declined between 0.5 % and 4.2%. Automobile majors Maruti Suzuki, Mahindra and Mahindra, Bajaj Auto, and Tata Motors shed between 0.2% and 2.3%.
Top-listed real estate firm DLF dropped 0.7%.
Separately, HSBC Securities downgraded DLF to “neutral” from “overweight”. Hindustan Unilever, a unit of Anglo-Dutch Unilever Plc, dropped 5.5% to Rs281.65, its lowest close in more than four months, after it said its quarterly net profit slipped as mounting costs weighed on margins.
Declining shares outpaced advancing ones in a ratio of 1.4:1 on a low volume of 259 million shares.
The 50-share NSE index shed nearly 1% to 5,687.40 points. World equities as measured by the MSCI All-Country World Index was down 0.2% by 1036 GMT, while the emerging markets index slipped 0.1%.
Indian markets will be closed on Wednesday for a public holiday. Non-ferrous metals producer Sterlite Industries closed 0.3% higher at Rs178.90 as it reported a 61% rise in its December-quarter net profit.
Dr Reddy’s Laboratories slipped 3.2% to Rs1,584.10 as the second largest drug maker swung to a profit in the third quarter, but missed street estimates hurt by a decline in European sales.
Idea Cellular rose 3.3% to Rs71.55 after the sixth-largest mobile carrier beat forecasts with a 43% rise in quarterly net profit.
Ceat shed 4.2% to Rs117.65 as the fourth biggest tyre maker reported a 79% fall in quarterly profit hurt by soaring raw material costs, especially that of rubber, and said it expects the pressure to continue.
SKS Microfinance, India’s largest and only listed microfinance lender, slid 3.3% at Rs661.85, after it posted a 38% drop in net profit for the December quarter.
Graphic by Yougesh Kumar/ Mint