Indian stocks dropped the most in a month as some investors pared bets on interest-rate sensitives like lenders and engineering companies before the monetary policy next week and the end of the monthly derivatives series on Thursday.
State Bank of India slid the most in six weeks, while ICICI Bank, the largest private lender by assets, dropped the most in three weeks.
Sun Pharmaceutical Industries, the nation’s most valuable drugmaker, declined the most this year. Tata Steel tumbled 5.2%, the worst performer on the benchmark gauge.
The S&P BSE Sensex declined 1.5% at the close, the steepest loss since February 23, while a gauge of mid-cap stocks fell to a two-week low.
The Sensex is set for its best month since October 2013, as Finance Minister Arun Jaitley’s pledge to further cut the fiscal gap stoked speculation of an interest- rate reduction and spurred capital inflows into local shares. The Reserve Bank of India is scheduled to review rates on April 5.
“Traders are booking profits on rate-sensitive sectors after a sharp rally rather than face the uncertainty of the rate decision next week,” Chakri Lokapriya, the Mumbai-based chief investment officer at TCG Advisory Services, which manages about $3bn in assets worldwide, said by phone. “The market is showing bouts of weakness before the expiry this week.”
RBI Governor Raghuram Rajan has kept interest rates on hold since September and said last month that a prudent budget as well as contained inflation were pre-requisites for further easing.
He also said that the economy showed signs of weaker momentum, “pulled down by slackening agricultural and industrial growth,” according to a February 2 statement. He reduced benchmark borrowing costs by 125 basis points in 2015.
The outlook for lower interest rates and an easing in global market turmoil has brought foreign investors back to Indian equities. Global funds have bought $2.6bn of shares this month, set for the biggest monthly purchase since January 2015.
The inflows helped fuel an 8.5% advance in the Sensex this month, which left the gauge trading at its highest valuation this year.
Markets were closed on Thursday and Friday for public holidays.
State Bank slid 4.2% to Rs188.30. ICICI Bank dropped 3.7% to Rs225.45. Sun Pharma tumbled 4.4% and Tata Steel slumped 5.7%. Housing Development Finance Corp, the largest mortgage lender, dropped for a second day.
Meanwhile the rupee yesterday erased all early losses to close marginally higher against the US dollar after some banks sold dollars on behalf of exporters.
The home currency closed at 66.57, up 0.1% from its previous close of 66.64. The rupee opened at 66.86 and touched a high and a low of 66.56 and 66.87 respectively.
There will be no bank transactions on April 1 due to the annual closure of accounts.
Traders are eyeing US non-farm payroll and unemployment data on Friday. A better-than-expected number will raise the possibility of a rate hike by the US Federal reserve in its April policy meet.
Since the beginning of this year, the rupee has lost 0.64%, while FIIs have sold $288.20mn from local equity and $889.60mn in debt markets.
Most Asian currencies closed mixed. The Malaysian ringgit was up 0.54%, South Korean won 0.28%, Singapore dollar 0.12%, Taiwan dollar 0.1% and China Offshore spot up 0.06%. However, Indonesian rupiah was down 0.73%, Japanese yen 0.4% and Thai baht 0.20%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 96.307, up 0.04% from its previous close of 96.273.
The 10 year bond yield closed over 32 month low ahead of the Reserve Bank of India’s bi-monthly policy meet on April 5. Most of the analyst expects that the RBI may cut 25 basis points at the meeting.
India’s 10-year bond yield closed at 7.498%, a level last seen on July 11,2013, compared with Wednesday’s close of 7.51%.