Panicky investors drag Indian shares down

Bangalore: Indian shares fell more than five per cent yesterday, their biggest percentage drop in six weeks, as investors took fright from shaky global markets that slid on US recession worries and more writedowns in the financial sector.

Traders said sentiment was also weighed down by a voter-focused budget that wrote off farm loans and gave tax breaks to individuals, but had little to spur investment to improve roads and raise power output.

An increase in the tax on short-term capital gains, on investments sold for profit before one year, to 15 per cent from 10 per cent also dampened investors, they said.

The main 30-share BSE index closed down 5.12 per cent, or 900.84 points, at 16,677.88, with 26 components losing ground.

It was the biggest percentage fall since January 21 when it lost 7.4 per cent, and the second-largest drop in absolute terms also from that day when the benchmark fell 1,408 points.

The index has lost 6.4 per cent over three days, and is at its lowest close in nearly three weeks - ending below its 200-day moving average of 17,121.59, indicating weakness ahead, traders said.

"The market has not bottomed out and in this scenario the fall below the 200-day moving average should trigger more selling," said Amitabh Chakraborty, president of equities at Religare Securities.

The BSE index, which is 21.4 per cent below its record of 21,206.77 hit on January 10, has fallen almost 16 per cent in 2008.

Reliance Industries and ICICI Bank led the losses with each falling more than 6 per cent. The two stocks constitute about a quarter of the main index.

"Our markets are being influenced by overseas cues, as there is no positive trigger in the domestic market that can help it stage a recovery," said D.D. Sharma, vice-president at Anand Rathi Securities.

World stocks tumbled while the dollar plumbed record lows on Monday as fresh concerns about the health of the banking sector and a US recession drove investors to safe-haven gold and government bonds.

Reliance, India's top petrochemicals maker, fell 6.2 per cent to Rs2,304.75, taking its losses to 11 per cent over three days. Traders said the stock was hit by the government's plan to impose a five per cent import duty on naphtha, used to make polymers.

Brokerage Kotak Securities said in a report that it had lowered its consolidated EPS estimates for Reliance for the current fiscal year to March 31 by nearly three per cent since higher import duty was negative for the company.

ICICI Bank fell six per cent to Rs1,024.45 and its bigger rival State Bank of India closed 8.8 per cent lower at Rs1,923.40, tracking a sell-off in financials in global markets on credit worries.

The 50-share NSE index closed down 5.18 per cent at 4,953, its lowest close since February 13.