The Indian stock market fell 0.7 percent on Thursday to its lowest close in more than two months as a new corruption scandal rocked the country, hitting shares of banks and other companies allegedly involved in exchanging bribes for large corporate loans. Trade was volatile towards close as monthly derivative contracts expired on the National Stock Exchange.
The 30-share Bombay Stock Exchange index closed at 19,318.16 points, down 0.73 percent. Money Matters fell 20 percent, Hindustan Construction dropped 10.9 percent and DB Realty fell 10 percent, making them some of the biggest percentage losers.
All those companies were named by the Central Bureau of Investigation, which on Wednesday said it arrested eight officials from state-run listed companies, including the chief executive of LIC Housing Finance, for taking hundreds of millions of dollars in bribes to facilitate large corporate loans. LIC Housing shares were the third-most traded amongst main stocks on the BSE, with a volume of about 8.3 million shares, close to 30 times their average 30-day volume. Senior executives at state-run Punjab National Bank, Bank of India, and Central Bank of India were taken into police custody late Wednesday.
Shares in Punjab National and Bank of India fell more than 5 percent. The India Banking Sector Index closed down 1.4 percent. However, Citigroup said the impact on perception/sentiment will be larger and will likely lead to some de-rating of the entire public banking sector. LIC Housing Finance said 11.3 percent of its total loans are to builders and those loans are secured by underlying assets.
This is the third big Indian corruption scandal in the past few months. It comes on the heels of a telecoms scandal that forced India's telecoms minister to resign and has paralysed the country's Parliament. Take a Look: [ Still, some analysts and fund managers are choosing to focus instead on the growth in Asia's third-largest economy, slated to grow 8.5 percent next year.
"Anyone who has been an investor in India has to be familiar with issues like these," said Vikas Pershad, Chief Executive of Veda Investments in Chicago. "This would lead to preference towards quality stocks in the near term, but the larger picture is attractive. The long-term growth story is intact," Pershad said.
The broader stock market was impacted with major stocks like top engineering and construction firm Larsen & Toubro and energy giant Reliance Industries leading the losses for the main index. Larsen & Toubro shed 3.5 percent, while Reliance dropped 1.4 percent. Market breadth was negative as declining shares were more than thrice the number of gainers, in a moderate volume of 417 million shares. The 50-share NSE index declined 1.1 percent to 5,799.75 points.
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