Markets close over 2% down on fresh economic worries

Markets close over 2% down on fresh economic worries

Mumbai: Indian shares snapped a four-day winning streak and fell 2.2% on Tuesday, as renewed doubts over the pace of the global economic recovery and weak European markets prompted investors to book profits.

Index heavyweight Reliance Industries and financials, which had seen gains in the past few sessions, saw widespread selling, while leading car maker Maruti Suzuki bucked the trend after it said May car sales were its highest-ever in a month.

“We are hovering in a trading range. Whenever we are close to the upper range, there has been profit booking because investors are expecting the markets to remain weak," said D D Sharma, senior vice president at Anand Rathi Securities.

“Weak European markets are adding to the pressure."

The main 30-share BSE index closed down 372.60 points to 16,572.03, after rising for four straight days in which it recouped nearly 900 points. Twenty-seven of its components ended lower. The wider 50-share NSE Nifty index ended down 2.3% at 4,970.20 points.

A survey showed India’s manufacturing sector expanded at its fastest rate in more than two years in May, bolstered by steady growth in output, new orders and employment.

Official data on Monday showed the economy grew 8.6% in the March quarter, its fastest in six months, thanks to government and consumer spending.

Growth is expected to be 8.5% in the current year that started on April 1, Finance Minister Pranab Mukherjee said after the data was released.

Analysts said the forecast was probably optimistic but some worried it may hasten the government rolling back stimulus measures and raising rates.

“High inflation, sluggish private consumption and a softening stimulus are some of the key concerns. Interest rates will also head north though at a gradual pace," brokerage India Infoline said in a note.

Financial stocks buckled under the pressure, with largest lender State Bank of India down 2.6% to Rs2,210.15, private sector lender ICICI Bank falling 3.3% to Rs838.35, and mortgage lender Housing Development Finance Corp losing 2.9%.

Metal stocks Hindalco and Sterlite Industries fell as London copper futures slipped after a bank holiday, and were weighed down by warnings from the European central bank and China about economic recovery.

Auto makers were less affected as India continued to be one of the few bright spots globally for auto sales, helped by improving consumer spending, though rising costs remain a concern for the companies.

Maruti Suzuki rose 1.8% to Rs1,259.20, but Hero Honda fell 1% to Rs1,917.90 after reporting May sales rose 14%, while Mahindra & Mahindra lost 1.5% to Rs563.90.

“I think the market will remain volatile because of the external situation, which will not ease in coming weeks," Ridham Desai, head of India research at Morgan Stanley told reporters at the sidelines of a conference.

Still, Desai expected the main stock index to rise 10-15% by the end of this year on strong corporate earnings and domestic growth.

“India should do reasonably well in recent months, relative to other markets," he said.

Elsewhere, Asian stocks ended lower, while European stocks were trading 2-3% lower as easing manufacturing growth in the euro zone, China and South Korea fuelled pessimism over the global economic recovery.

In the broader market, declines led advances in the ratio of 1.8:1 on moderate volume of 351 million shares.