Key indices at 2-year lows

Key stock market indicators dropped to their lowest levels in over two years even as the Reserve Bank of India chose to leave rates unchanged in its policy review.

The Sensex was down 345.12 points or 2.18% to close at 15491.35. This is its lowest close since November 2011. Similarly, the Nifty closed at 4651.50.

David Pezarkar, head equities at Daiwa Asset Management believes a section of the market may have been disappointed by the central bank’s moves, or the lack thereof, on Friday.

“Some investors were looking for a cut in the cash reserve ratio (called CRR that banks have to park with the central bank). They were looking for more aggressive measures from the Reserve Bank of India. Political events could also have contributed to the downside,” he said.

The opposition in Parliament repeated their demand for the resignation of home minister P Chidambaram for allegedly using his position to favour of a former client.

They had already asked for his resignation over his alleged role in the 2G scam.

Sonam Udasi, head of research at IDBI Capital Market Services feels the weakness largely reflects domestic issues.

“It is not just the global factors that are affecting Indian equities. There is a deceleration in growth, widening fiscal deficit and currency risk. All of this is weighing down on equities,” he said.

Data for the month of October revealed that industrial production has contracted over the previous year, the government has indicated that it would not be able to meet its target for fiscal deficit; and the rupee hit its lowest ever level of Rs 54.31 against the dollar on Thursday.

India is looking at various ways to boost capital inflows, including reducing the lock-in period for foreign institutional investors (FIIs) in some infrastructure bonds, a senior finance ministry official told reporters on Friday.

The official said the lock-in period for some infra bonds may be reduced from 3 years to a year, adding that the current FII outflows from Indian equities was a temporary phenomenon.

Foreign funds have sold $300 million of Indian shares so far this year, in sharp contrast to record investment of more than $29 billion in 2010, and India’s 30-share benchmark index is down more than 23%, making it the worst-performing major global market this year.