Indian shares fell nearly 1 percent on Tuesday, snapping a three-day winning streak, as lenders such as Yes Bank and other financial firms slumped after the central bank raised short-term interest rates in a bid to curb the rupee's slide. Late on Monday, the Reserve Bank of India raised short-term borrowing costs, restricted funds that banks could access and announced a 120 billion rupee ($2 billion) bond sale as it sought to create demand for the rupee, which hit a record low last week.
-- Financial shares slump after RBI raises two short-term rates
-- Morgan Stanley turns 'cautious' on India's financial services
The central bank's measures are seen hurting growth, while the tightening will push back lending rate cuts. Bank of America-Merrill Lynch reduced India's fiscal year 2013/14 growth forecast to 5.5 percent of the gross domestic product from 5.8 percent after the central bank's liquidity measures, it said in a note on Tuesday. "Higher short-term rates and expectations that policy rates would now be cut with a lag may lead to some tinkering down of estimates," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.
The benchmark BSE index fell 0.91 percent, or 183.25 points, to 19,851.23, closing below the key 20,000 level. The broader NSE index fell 1.25 percent, or 75.55 points, to 5,955.25, marking its biggest single-day fall since July 3. Lenders dependent on short-term wholesale funding such as Yes Bank Ltd will be most affected by the central bank's measures to curb liquidity, analysts said. Yes Bank slumped 9.9 percent, while IndusInd Bank Ltd ended 7.9 percent lower.
Among other banks, ICICI Bank Ltd fell 5.4 percent, while HDFC Bank Ltd lost 2.4 percent a day ahead of its June quarter results. Shares in financial firms also slumped. IDFC Ltd fell 7.2 percent, while Housing Development Finance Corp Ltd ended 3.8 percent lower. Morgan Stanley also changed its view on India's financial services stocks to "cautious" from "in-line", citing the Reserve Bank of India's decision to raise two short-term rates. However, among stocks that gained, Tata Consultancy Services Ltd ended 0.5 percent higher after hitting an all-time high of 1,666.35 rupees, ahead of its earnings results later this week.
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