New Delhi: Shares dropped to their lowest close in two weeks on Monday, their second straight day of fall, in a broad selloff as growing fears of a Greek default hit world markets and investors brace for a possible local interest rate increase this week.
ICICI Bank and Infosys Ltd , which together account for more than 15% of the weightage in the main index, led the decline. Tata Motors fell 4.3% after its group chief executive officer resigned on Friday, only 18 months after joining the company.
The benchmark 30-share BSE index closed 2.17% lower at 16,501.74, its lowest close since Aug. 29. All but three of the index’s components fell. The wider 50-share NSE index fell 2.23% to 4,946.80.
“The main factor is the Europe problem,” said Neeraj Dewan, a director at Quantum Securities in New Delhi.
“People fear that if someone goes bust, it will lead to a credit freeze. That might be the worst fear but everyone is risk averse. No one wants to take a chance.”
European shares tumbled to 26-month lows, following a slide in Asian equities, as investors worried that Greece would default amid signs of disagreement among euro zone policymakers.
A German policymaker’s resignation from the European Central Bank’s board on Friday underscored internal divisions over its bond-buying programme — one of the central bank’s main weapons in fighting the debt crisis by forcing down yields on debt of countries under pressure from the bond markets.
Data on Monday showed India’s industrial output growth in July slumped to its lowest in nearly two years as high interest rates hurt manufacturing activity.
Still, the Reserve Bank of India is widely seen delivering another rate increase on Friday, which would be the 12th increase in an 18-month-long tightening cycle, as inflation pressures continue to remain strong, a Reuters poll showed.
“On one side, there are concerns about Europe. And the second problem is possibility of another rate hike. These are the factors that will keep the market under pressure,” said K.K. Mital, head of portfolio management at Globe Capital.
The benchmark index is down nearly a fifth this year to become among the worst-performing equity markets in the world. Rising rates, concerns of slowing growth and a spate of corruption scandals that have delayed policy making have hurt sentiment in Asia’s third-largest economy.
Foreign funds have been net buyers of more than $510 million in Indian stocks so far in September, after pulling out a net $2.2 billion last month.
ICICI Bank fell 3.8% to Rs 862.35, its lowest close in two weeks, while top lender State Bank of India lost 4.6% to Rs 1,863.40. Rising rates have curbed credit growth for the lenders.
Infosys, the country’s second-largest software services exporter, fell 3.3% to end at Rs 2,198.45, while larger rival Tata Consultancy Services fell 3% to 985.70 rupees. Europe is the second largest market for Indian software services exporters after the United States.
Tata Motors closed 4.3% down at Rs 146.35 after falling as much as 6.2%.
Energy major Reliance Industries , India’s most valuable firm and the heaviest stock in the benchmark, fell 2.4% to Rs 806.30.
The company said on Friday there was no evidence to suggest that costs in development of the country’s key natural gas field in the Krishna Godavari (KG) basin were overstated, after the government auditor criticised the firm.
In the broader market, there were nearly four losers for every gainer with about 599 million shares changing hands.
World stocks as measured by MSCI was down 1.46%, while the emerging equities fell 1.98%.