Mumbai: Indian shares fell 1.3% on Tuesday to its lowest close in more than two weeks, as banks dropped on worries the Reserve Bank of India (RBI) may tighten policy after inflation rose faster than expected in November.
Sentiment was also weighed down by weaker world stocks as concerns grew about the European banking sector and the fiscal health of Greece.
State Bank of India and ICICI Bank, India’s top two lenders, each fell 3%, while HDFC Bank lost 3.3%.
“We could see a CRR hike followed by reverse repo rate hike soon because of the inflationary pressures. Also, credit offtake has not yet matched expectations,” said Ambareesh Baliga, vice-president of Karvy Stock Broking.
He was referring to the cash reserve ratio, the percentage of deposits that commercial banks must keep with the central bank, and the main short-term borrowing rate.
Government data on Monday had showed wholesale prices rose a faster-than-expected 4.78% in November, with the food price index soaring an annual 16.71%.
The fall in ICICI Bank was also after a government source said it had paid around Rs3 billion as advance tax for the quarter ending December, less than half paid a year ago.
The 30-share BSE index Sensex closed down 1.29%, or 220.39 points, at 16,877.16, its lowest close since 27 November. Twenty-four of its components closed in the red.
Energy major Reliance Industries, which has the most weight in the index, shed 1.4% to Rs1,051.35.
Media reported Reliance would decide on submitting a financial bid for bankrupt LyondellBasell on Tuesday, after the outcome of US court hearing on a revised rescue plan.
LyondellBasell filed an amended reorganization plan with a US court proposing a $2.8 billion rights issue as it awaits a possible bid from the Indian company.
The BSE index had risen as much as 0.6% in early trade, as advance taxes paid by some companies indicated strong quarterly earnings.
Hindalco rose 1.1% to Rs141.60 after a government source said the aluminium maker paid Rs1 billion as advance tax for October-December, up from 400 million last year.
Copper producer Sterlite erased early gains and closed down 0.3% at Rs834.80 as three-month copper on the London Metal Exchange fell $50 to $6,875 a tonne by 1035 GMT.
“The market will hold lower until the month end. The correction was overdue,” said Baliga.
The BSE index has rallied 75% in 2009 on the back of robust foreign fund inflows.
In the broader market, losers outnumbered gainers in a ratio of 2.5:1 on low volume of 322 million shares.
The Bombay Stock Exchange said the start of trading would be advanced by 10 minutes to 9:45 am from 18 December.
The 50-share NSE index fell 1.4% to 5,033.05.