Mumbai: Shares fell 1.5% on Thursday to their lowest close in four-and-a-half months as rising borrowing costs dampened the outlook for companies, while improved prospects elsewhere lured foreign funds away.
Financials led the decline weighed down by expectations for another rate increase in the next two months after the Reserve Bank of India (RBI) raised rates on Tuesday for the seventh time in a year to cool inflation pressures.
Foreign institutional investors, which had been the mainstay of the market in 2010, have pulled out $849 million so far in January and the benchmark index is poised to post its biggest monthly fall in more than two years.
Top utility vehicle maker Mahindra & Mahindra dropped 4.9%, its biggest single-day fall in more than eight months, after Goldman Sachs downgraded the stock to “sell” from “buy”, saying it has historically moved in line with the demand cycle, and looks likely to correct with moderation in demand growth.
The 30-share BSE index shed 285.02 points to 18,684.43, its lowest close since Sept. 8, 2010. Twenty-eight of its components ended in the red. The 50-share Nifty or NSE index shed 1.5% and closed below its 200-day moving average at 5,604.30 points.
In the broader market, almost two shares declined for every share that advanced on relatively low volume of 249 million shares.
“It was a follow-up to what happened on Tuesday. After the RBI’s 25 basis point hike, people expect more to come,” said Neeraj Dewan, director of Quantum Securities.
The BSE benchmark is down nearly 9% this month, which if maintained till the end of January would make it the biggest monthly fall since October 2008.
In 2010, the index had gained 17.4% on the back of record foreign fund investment of $29.3 billion.
While India’s central bank has been tightening policy, the US Federal Reserve said on Wednesday it was in no rush to cut short its rescue of the US economy, saying high unemployment still justified its $600 billion bond-buying plan even though the economy has shown some signs of improvement.
Analysts expect an improving US economy will draw more investors away from emerging markets such as India.
“It is going to be a continued flow of funds into North America as people are rebalancing from emerging markets into North American equities,” John Studzinski, senior Blackstone managing director, told Reuters Insider at Davos in Switzerland, on Wednesday.
The MSCI’s emerging markets stock index is down 0.7% in 2011, while the Dow Jones industrial average has firmed 3.5% in the period.
Leading lenders State Bank of India and ICICI Bank dropped nearly 1% and 2.1% respectively.
HDFC Bank closed 1.7% lower, ahead of results that showed Decmber quarter net profit rose a third from year ago.
Sterlite Industries tumbled 5.3% after an arbitration panel ruled against the non-ferrous metal producer’s call option to buy the remaining 49% in Bharat Aluminium Co.
Outsourcers Infosys Technologies and Wipro fell 1.8% and 1.6% respectively, while sector leader Tata Consultancy Services rose 0.6% higher.
World stocks as measured by MSCI and emerging markets index were up 0.1% each by 4:00pm.
Atlas Copco (ATLA.BO) jumped 13.9% to Rs 2,129.65 after the industrial and construction equipment maker raised its offer price to delist the company from the Indian bourses to Rs 2,250 from Rs 1,426.
JSW Steel slid 5% to Rs 965.60, as the No. 3 Indian steelmaker said its October-December net profit fell by 32%.
SpiceJet fell 7.4% to Rs 68.70 after the carrier reported a 14% decline in quarterly profit.
Media firm UTV Software Communications (UTVS.BO) firmed 2% to Rs 533.95 after its third-quarter profit rose 6%,as the gaming and television businesses boosted revenue.
Personal care products maker Marico gained 2.5% to Rs 127.65 after it posted a forecast-beating 12% jump in December-quarter net profit as volume growth steered earnings.