The benchmark Sensex ended below the psychological 29,000-mark, dragged by a sell-off in blue chip stocks in the oil and financial space, as investors turned cautious ahead of the Union Budget.
The fall was triggered by rating agency Standard & Poor’s (S&P) comments that India fares poorly on debt and fiscal parameters compared to its other peers and it will have to wait for another three years for a credit rating upgrade.
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The Sensex, which were trading mildly positive as the Budget session kicked off in the parliament, came off by more than 300 points after the S&P news release.
Banking stocks, led by State Bank of India (SBI) and Axis Bank-whose prospectus are intertwined to the health of the economy-saw heavy selling. Oil and gas stocks including Reliance Industries, ONGC and Gail also came off sharply as global oil prices dipped on fears of oversupply.
Dropping for a second straight day, the benchmark Sensex closed at 28,975.11, down 256.3 points, or 0.88%. The 50-share Nifty ended 78.65 points, or 0.89% lower at 8,754.95.
“Improvements in India’s weak fiscal balance sheet are likely to be gradual and are thus unlikely to lead to a rating upgrade in the next three to five years,” S&P said, adding that the government needs to take steps to boost growth, cut fiscal deficit and meet promises of reforms to justify an upgrade.
In September 2014, the rating agency had raised India’s credit rating outlook to ‘stable’ from ‘negative’ on the Narendra Modi government’s promises of reforms.
Market players are expecting the Modi-government to unleash its reform and growth agenda in its first full Budget to be presented on Saturday.
“Expectations are high that the forthcoming budget would be ambitious and reform-oriented, and be a development
roadmap for the coming years,” said Deutsche Bank in a report.
Before losing ground in the last two sessions, the Sensex had gained around 4.4%, or 1,235 points from 28,227 on February 9 to 29,462 on February 19 on budget expectations.
G Chokkalingam, managing director, Equinomics Research said some investors were booking profits ahead of the Budget following the sharp run up.
“Some section of the market is worried that the government will go for populist measures after the defeat in Delhi elections. The market will remain very volatile with a downward bias ahead of the Budget,” he said.
Among Sensex components, Reliance Industries fell the most at 2.53%, followed by Gail and Axis Bank, which fell around 2% each. SBI, Hindustan Unilever and HDFC also fell more than 1.5% each.
According to provisional data, foreign institutional investors bought shares worth around Rs 600 crore, while domestic investors were net sellers to the tune of Rs 164 crore on Monday.