Indian shares dropped for a second day on Tuesday, falling 2.9% to their lowest close in three weeks, as weak world markets added to the gloom caused by the absence of a stimulus for the industry in Monday’s budget.
Banks were among the major losers after their near-term outlook was seen dented by higher-than-expected government borrowing plan, which could keep bond yields high and erode the value of bonds held by banks.
Sliding stocks send the rupee to its lowest in more than two months against the dollar, but this failed to lift sagging outsourcers that get more than have their revenue from exports, mainly to the United States, because of global economic woes.
The main BSE stock index shed 2.91%, or 270.45 points, to 9,035, its lowest close since 27 January. All but one of its components fell. The 50-share NSE Nifty index closed down 2.74% at 2,770.50 points.
World stocks fell to a two-week low on Tuesday as concerns about the economy and corporate profit intensified, while worries about a deterioration in eastern Europe hit the euro.
Gupta said only a cut in interest rates by Reserve Bank of India to help the slowing economy could halt the slide in domestic shares.
On Monday, acting finance minister Pranab Mukherjee said spending may have to jump later this year to shield the economy from a global slump and stem job losses, fuelling fears of a spiralling fiscal deficit that is headed for a seven-year high.
Energy group Reliance Industries contributed the most to the BSE index’s losses, falling 3.9% Rsto 1,267.60, its lowest close in three weeks.
Top lender State Bank of India fell 3.1% to Rs1,100.35 and rival ICICI Bank dropped 5.7% to Rs385.90 on worries additional government borrowing could hurt their outlook.
India is looking to raise an extra Rs450 crore ($9.2 billion) in the 2008/09 financial year in addition to already announced market borrowing to bridge the fiscal deficit, economic affairs secretary Ashok Chawla said on Monday.
Mukherjee said on Monday India’s fiscal deficit would rise to 6% of gross domestic product in 2008/09 from a planned 2.5%, a rise that could shake investors increasingly wary of emerging markets.
Shares in auto makers, which have been battling sluggish sales, extended losses into a second day after the budget failed to deliver on expectations for lower taxes and other incentives to boost demand.
Top utility vehicle and tractor maker Mahindra & Mahindra shed 5% to Rs298.70 while leading vehicle maker Tata Motors slipped 3.4% to Rs131.50.