MUMBAI: India's indexes posted their biggest daily falls in two weeks on Monday as banks were hit by fears about slowing deposit growth, while capital good stocks like Larsen & Toubro fell on fears industrial output data due this week would weaken.
Traders, returning after domestic markets were closed on Thursday and Friday, also cited caution ahead of other key events this week, including Infosys' earnings and inflation data on Friday.
Investors are also keenly awaiting the Reserve Bank of India policy meeting on April 17. India's BSE index has fallen nearly 4 percent since the central bank disappointed investors by leaving rates on hold on March 15.
Expectations are split about whether the RBI will deliver a cut in the repo rate this time, or whether it will find it more urgent to deal with liquidity shortages by again targeting the cash reserve ratio after two previous cuts this year.
"Markets are pre-empting weak IIP and inflation data," Ambareesh Baliga, COO at Way2Wealth s aid, referring to industrial output.
"On monetary policy the expectation is now there will be no change (in repo rates)," Baliga added.
The country's main 30-share BSE index closed down 1.51 percent at 17,222.14 points and the 50-share NSE index 1.66 percent at 5,234.40.
Those falls outpaced the 0.8 percent falls in the MSCI index for Asia-Pacific excluding Japan, as the region was hit by worries about the US economy after Friday's slower-than-expected jobs growth data.
Indian banking shares were among the top decliners after deposit growth fell short of projections for the fiscal year ended in March, as customers withdrawals contributed to an acute liquidity crunch in the sector.
Net interest margins in the sector could be hit as banks may have to raise the rates offered on deposits to retain customers, analysts said, as customers prefer physical assets to financial ones in order to counter high inflation.
State Bank of India fell 2.87 percent while private lender ICICI Bank fell 2.61 percent.
Shares in power equipment maker Bharat Heavy Electricals Ltd and engineering and construction conglomerate Larsen & Toubro dropped amid expectations for weak February industrial output data due on Thursday.
The uncertainty about the data sparked a round of profit-taking in the two stocks after both recently outperformed the Nifty's gains of 0.5 percent last week.
BHEL shares ended 4.3 percent lower after surging 6.4 percent last week. Larsen & Toubro slipped 3.5 percent.
But Ranbaxy Laboratories rose 3.99 percent after brokerage Macquarie said the US Food and Drug Administration was "likely" to approve next month the distribution of acne medicine CIP-Isotretinoin in the United States.
Macquarie did not specify sources for its prediction, but noted such an approval could lead Ranbaxy to gain a 20-25 percent market share in the segment, making it a $120-160 million product.
Shares of tyre manufacturers gained after India extended anti-dumping duties on certain types of tyres from China and Thailand until Oct. 7, according to a notice from the Ministry of Finance. Apollo Tyres ended up 1.3 percent.
