Sensex drops as banks hit, while earnings disappoint

MUMBAI (Reuters) - The BSE Sensex dropped to its lowest close since early June despite broad gains in Asian shares as lenders were hit by expectations the Reserve Bank of India (RBI) will keep interest rates on hold next week, while earnings disappointment dented ITC and BHEL.

The RBI is expected to hold the repo rate steady at its review on Tuesday, a Reuters poll showed, keeping pressure on the government to reduce the fiscal deficit and take steps to remove bottlenecks that are driving up food prices.

However, investors fear the government will hold off on widely anticipated fuel subsidy and retail reforms because of renewed opposition from party and coalition allies, which extended recent falls in state-run oil stocks on Thursday.

Market sentiment was also hit after provisional data showed foreign investors sold a net 3.72 billion rupees of shares on Wednesday, marking a second day of net sales after strong buying earlier this month.

"RBI would maintain status quo on rates, but market would only be a tad disappointed because it's well understood that action is expected and should come from New Delhi," said Phani Sekhar, fund manager of portfolio management services at Angel Broking.

The 30-share BSE Sensex fell 1.22 percent to 16,639.82 points, marking its lowest close since June 6.

The 50-share Nifty fell 1.3 percent to 5,043.00 points.

The losses came despite gains in Asian shares, with the MSCI Asia-Pacific ex-Japan index rising 0.6 percent.

The expiry of derivatives at the end of the session kept trading volatile, especially towards the end of the session.

Banks led decliners, with brokers citing heavily selling from foreign investors. Of 20 economists polled by Reuters, 19 expect the RBI to keep the repo rate on hold.

Analysts also don't expect the central bank to deliver a cut in the cash reserve ratio, or the amount of funds that lenders must keep with the RBI, which would have had a more direct benefit to the sector.

Private lender HDFC Bank fell 1.6 percent, while State Bank of India fell 2.5 percent.

Worries about when the government would raise diesel prices continued to route oil stocks. Oil and Natural Gas Corporation fall 2.6 percent, while Hindustan Petroleum Corp lost 2.8 percent, extending falls to a second day.

A slew of earnings disappointment also hit shares.

ITC shares lost 2.1 percent after India's largest cigarette maker lagged market forecasts despite a 20 percent jump in April-June profits, due to slower-than-expected growth in cigarette volumes.

JSW Steel , India's No. 3 steelmaker, fell 3.9 percent after quarterly profit was half of what analysts had expected due to a foreign exchange loss and higher raw material costs.

Bharat Heavy Electricals Ltd shares fell 2 percent despite posting a higher than estimate net profit because of concerns over slowing order flows.

A slew of mid cap stocks slumped by double digits on widespread speculation some investors were liquidating their positions because of margin call pressures.

Tulip Telecom fell 26 percent, while Radico Khaitan , Pipapav Shipyard , Parsvnath Developers and Everonn Education fell between 11-20 percent each.

Source: http://news.yahoo.com/sensex-falls-banks-retreat-ahead-rbi-decision-102407107--sector.html

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