The BSE Sensex dropped 1.9 percent on Thursday to post its lowest close in six weeks, as investors cut their exposure to risky assets amid concerns about the impact of high interest rates and slowing economic growth on corporate earnings.
The benchmark index has lost 6.3 percent over the last six sessions in its longest losing streak in more than three months. The market sentiment was also dented by the euro zone debt crisis and its impact on the global economy and the financial system.
Shares in energy major Reliance Industries led the losses and ended 4.5 percent lower at 809.95 rupees, as institutional investors pared their holdings in the index heavyweight. The stock is down nearly a quarter this year. The main 30-share BSE index ended down 1.87 percent, or 314.16 points, at 16,461.71, with all but three of its components closing in the red. The index had turned positive briefly during the day.
There is a clear recognition of the fact that corporate earnings will remain under pressure until we see some fiscal as well as structural changes, said Anshu Kapoor, private wealth head at Edelweiss Global Wealth Management. The Europe problem is not going to be solved overnight. So, there is more downside from these levels. This is going to be a painful, long and tiring journey for investors in the near-term, he added.
The benchmark is down nearly 20 percent in 2011. Foreign portfolio investors have bought equities worth about $663 million so far this year, sharply down from $29 billion they invested in 2010.
The Reserve Bank of India (RBI) has been among the most aggressive globally, increasing rates 13 times since early 2010, and denting consumer spending and investment by companies while inflation remains near double digits.
Weak global demand is exacerbating the slowdown in the Indian economy whose growth this year might be well below the 8.5 percent heady pace in the fiscal year that ended in March. Macquarie earlier this week downgraded its India's growth forecast for the year to March 2013 by 1 percentage point to 6.9 percent due to a lack of policy reforms and the lagged impact of monetary tightening.
The quarterly numbers of many frontline firms were poor as most of them are suffering due to higher borrowing and input costs, and slowing demand, said Alex Mathews, head of research at Geojit BNP Paribas Financial Services.
A weaker rupee failed to trigger support for export-driven software services firms such as Infosys and Wipro amid worries that a blowup of Europe's problems could drag the United States back into recession.
Fitch Ratings warned that it may reduce its stable rating outlook for U.S. banks with large capital markets businesses because of contagion from problems in troubled European markets.
Infosys fell nearly 1 percent to 2,753.50 rupees and Wipro dropped 1.7 percent to 367.65 rupees. The technology sector index ended 0.8 percent lower. Software services company Patni Computer Systems rose 10.1 percent to 428.25 rupees, the highest closing level in more than six months, after U.S.-listed parent iGate said it planned to delist Patni. The delisting, expected to be completed by mid-2012, will be done through a reverse book-building process, iGate said in a statement late on Wednesday.
The 50-share NSE index ended down 1.9 percent at 4,934.75 points. In the broader market, losers were slightly ahead of gainers in the ratio of 2.7:1 on heavy volume of 640 million shares.
STOCKS ON THE MOVE
* BGR Energy Systems rose as much as 4.6 percent after the power equipment maker said it had bagged a contract worth 16.98 billion rupees. It ended the day up 0.7 percent at 280.10 rupees.
* Suzlon fell 12 percent to 25.65 rupees. A block deal saw 2.08 percent of the equity changing hands. A source told Reuters later the promoters sold a 2 percent stake in the company.