The BSE Sensex fell 1.2 percent on Wednesday, with State Bank of India, the country's top lender, falling the most in nearly six months, after a rise in non-performing assets hit investor confidence.
Financials led the decline after ratings agency Moody's lowered its outlook on the country's banking system, citing slowing growth and concerns about asset quality. Lingering concerns over the health of the domestic economy, including a widening fiscal deficit and slowing exports also weighed on investor sentiment, traders said.
Domestically we are in a trap. On the one side, the depreciating rupee is troubling the current account deficit. On the other side because of subsidy burden continuing, the fiscal deficit is troubling, said Deven Choksey, managing director at KR Choksey Shares & Securities.
The main 30-share BSE index ended down 1.18 percent at 17,362.10 points - its lowest close in two weeks -with 24 of its components falling. State Bank of India fell 6.8 percent, despite a forecast-beating second-quarter profit after a rise in non-performing assets. The stock closed at 1,862.05 rupees, down 6.8 percent -- its biggest single day loss since May 17.
Rivals ICICI Bank, HDFC Bank and Axis Bank also fell between 1.4 percent and 2.5 percent. The BSE banking index closed down 2.62 percent.
Non-performing assets may continue to rise for another quarter or two, but banks are making all the due provisioning required and cleaning their books at a very healthy rate, said D.K. Aggarwal, chairman at SMC Investments and Advisors. The Indian banking system is well capitalized as compared to the banks abroad, he said.
Auto stocks were hit, with India's top carmaker Maruti Suzuki falling 4.2 percent, after Indian car sales suffered their biggest fall in a decade. Car sales fell 23.8 percent in October, the biggest percentage drop since December 2000, an industry body said, on higher interest rates and vehicle costs and labour unrest at Maruti, where sales fell by half.
The auto index closed down 1.72 percent. Export-driven Tata Consultancy Services rose 3.7 percent after it said it won a $2.2 billion order from UK-based pensions and insurance provider Friends Life. The stock closed up 1.6 percent.
Indian Oil Corp, the country's biggest refiner and oil retailing firm, fell 3.8 percent after it swung to a net loss in the September quarter, hit by rising shortfall on sale of petroleum products at subsidised rates.
Other state oil marketing firms Bharat Petroleum Corp and Hindustan Petroleum Corp fell 5.6 percent and 5 percent, respectively, after brent crude rose over $115 a barrel, its highest level since Sept. 15. The firms had raised gasoline prices by about 2.7 percent last Friday, a move that will help them cut revenue losses.
Prime Minister Manmohan Singh met with lawmakers of Trinamool Congress on Tuesday to heal a rift last week over the fuel price hike, which is seen as crucial to shrink a widening budget deficit.
India's trade deficit in October is seen at $19.6 billion, the highest in four years, the country's trade secretary said on Tuesday. At this rate, the trade deficit for the year could breach $150 billion.
The 50-share NSE index closed down 1.29 percent at 5,221.05 points. In the broader market, there were 3.03 losers for every gainer on total volume of about 546 million shares.
The Indian markets are closed on Thursday on account of a religious holiday. The markets are rangebound, and waiting for some good global cues. If, by next week the global markets are stable and we have no negative cues, we can perhaps see a rally, said Neeraj Dewan, director at Quantum Securities.
Globally, investor sentiment was boosted after Italian Prime Minister Silvio Berlusconi said he would resign, raising hopes the debt-ridden country would proceed with reforms that may help keep the euro zone's sovereign debt crisis from spreading.
The MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.3 percent, while Japan's Nikkei was 1.15 percent higher.
STOCKS ON THE MOVE
* Airlines Jet Airways, Kingfisher Airlines and SpiceJet fell 2.6 to 9 percent due to higher global crude prices.
* Consumer goods maker Hindustan Unilever rose 3.2 percent and traders said the stock was seeing good interest from funds and was expected to touch 415 rupees over the next three weeks due to long positions in futures segment and technical breakout.
* Shares in Aurobindo Pharma fell 3.4 percent after the company reported a net loss of 801.6 million rupees for July-Sept, versus a profit of 1.98 billion rupees year-ago.
TOP 3 BY VOLUME
* Unitech on 20.2 million shares
* Tata Motors on 13.89 million shares
* Lanco Infra on 13.26 million shares