Indian shares fell 1.5 percent on Thursday to their lowest close in four-and-a-half months as rising borrowing costs dampened the outlook for companies, while improved prospects elsewhere lured foreign funds away. Financials led the decline weighed down by expectations for another rate increase in the next two months after the Reserve Bank of India (RBI) raised rates on Tuesday for the seventh time in a year to cool inflation pressures.
Foreign institutional investors, which had been the mainstay of the market in 2010, have pulled out $849 million so far in January and the benchmark index is poised to post its biggest monthly fall in more than two years. Top utility vehicle maker Mahindra & Mahindra dropped 4.9 percent, its biggest single-day fall in more than eight months, after Goldman Sachs downgraded the stock to "sell" from "buy", saying it has historically moved in line with the demand cycle, and looks likely to correct with moderation in demand growth.
The 30-share BSE index shed 285.02 points to 18,684.43, its lowest close since September 8, 2010. Twenty-eight of its components ended in the red. The 50-share Nifty or NSE index shed 1.5 percent and closed below its 200-day moving average at 5,604.30 points. In the broader market, almost two shares declined for every share that advanced on relatively low volume of 249 million shares. The BSE benchmark is down nearly 9 percent this month, which if maintained till the end of January would make it the biggest monthly fall since October 2008. In 2010, the index had gained 17.4 percent on the back of record foreign fund investment of $29.3 billion.
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