Mumbai: Indian stocks declined the most in about two months, led by lenders, after the central bank (Reserve bank of India, or RBI) cut its benchmark interest rate as forecast by economists.

State Bank of India (SBI) and ICICI Bank Ltd, the country’s biggest lenders, were among the worst performers on the S&P BSE Sensex. Adani Ports and Special Economic Zone Ltd fell the most in about two months. Tata Motors Ltd, owner of Jaguar Land Rover, and Bharti Airtel Ltd, the nation’s top mobile-phone operator, tumbled about 5% each.

The Sensex plunged 2% at the close in Mumbai, the steepest decline since 11 February. Governor Raghuram Rajan reduced the repurchase rate by 25 basis points to 6.5%, a five-year low, said the central bank would look for more room to ease as it watches monsoon rains. The decision, predicted by 36 of 42 economists in a Bloomberg survey, came as Asian stocks slumped to a five-week low after a deepening slump in crude oil sapped demand for riskier assets.

“A 25-basis point cut was in the price," Aneesh Srivastava, who manages $700 million as chief investment officer at IDBI Federal Life Insurance Co., said by phone. “The market is also reacting to global cues."

‘Accomodative stance’

Along with slowing inflation, Prime Minister Narendra Modi’s move to narrow the budget deficit in February opened room for Rajan to join Indonesia and Europe in easing policy. Water reservoir levels, global oil prices and a planned pay raise for civil servants will decide if further easing is possible. The RBI’s stance will remain accommodative, Rajan said.

ICICI Bank tumbled 5.5%, the most since 1 February. SBI dropped to its lowest close since March 14. The stocks were the worst performers on the 10-member S&P BSE India Bankex, which lost 3.2%, ending five days of advances.

Adani Ports plunged 6.7%, the most since 11 February. Tata Motors declined 4.6%, while Bharti Airtel tumbled 5.2%.

The benchmark gauge of Indian option costs rose to a one-month high. The India VIX Index increased 2.2% to 17.83 at the close, following a 18% slump in March. The NSE Nifty 50 Index retreated 2% to 7,603.20.

‘March madness’

“With the RBI event over, stocks will pause after the March madness," Anita Gandhi, a director at Arihant Capital Markets Pvt. Ltd in Mumbai, said by phone. “The outlook on corporate earnings is not that exciting."

The Sensex last month capped its best month since January 2012, as a government pledge to further pare the fiscal gap and speculation of an interest-rate reduction spurred capital inflows. Company profits remain on the opposite trajectory, falling in four of the last five quarters in the worst run since the financial crisis. Analysts estimate an earnings growth of 3.3% in the March-quarter reporting season, which begins next week.

The Indian stock gauge has retreated 4.7% this year and trades at 15.2 times 12-month projected profits versus 11.5 for the MSCI Emerging Markets Index. Bloomberg

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