MUMBAI (NewsRise) -- Indian shares suffered their biggest fall in two months, weighed by exit polls that suggested Prime Minister's Narendra Modi's party may struggle to hold power in three crucial state elections.
Losses on Wall Street and regional equities following disappointing economic data too weighed on investor sentiment.
The BSE Sensex declined 2% to 34,959.72 and the Nifty 50 Index fell 1.9% to 10,488.45. All but two of the Sensex's 30 constituents ended lower and 44 of Nifty's 50 stocks posted negative daily returns. Reliance Industries slid 3.9%, the biggest contributor to the losses on both the gauges. Housing Development Finance Corp. and Axis Bank paced losses among financial companies, falling 2% each.
The Sensex's more than700-points decline came following the exit polls of the five state elections. The exit polls suggested that the Modi's Bharatiya Janata Party was locked in a close contest with the Congress Party in Madhya Pradesh and Chhattisgarh, and was likely to lose to its main national rival in Rajasthan. The state election results of the above three states are being closely watched by investors to gauge the likelihood of the BJP returning to power at the national level when federal elections are held by May next year.
The final results of the three states, along with Telangana and Mizoram, are expected on Tuesday.
Nomura said the outcome of the state elections will matter, considering that they are the last elections before the general parliamentary elections of next year. Tuesday's results would serve "as a litmus test of mood of the nation" and the exit polls will likely "give BJP cold sweat," it said.
Kotak Securities said a 0-3 score (BJP losing all the three states) or 1-2 score (BJP losing Madhya Pradesh and Rajasthan) for the BJP may result in a sharp market correction as investors will likely take a dim view of the party's prospects in the next national elections.
Indian equities were further pressured by losses on Wall Street following a weak U.S. jobs report and declines across regional markets after poor China and Japan economic data.
The benchmark equity indexes of Hong Kong, South Korea, Singapore, and China were down by at least 0.8% each. The S&P 500 Index declined by more than 2% after data released on Friday showed that the U.S. economy added 155,000 jobs last month, lower than the 198,000 expected by economists polled by Bloomberg.
There was more negative news on the economic side. Imports in China grew by 3% in dollar terms last month while exports increased by 5.4%, much lower than the 14.5% and 10% growth forecast by economists polled by Reuters, data released over the weekend showed. In data released on Monday, Japan's economy declined by 2.5% in the July-September period as against an earlier estimate of a 1.2% contraction.
The tepid economic data come at a time when investors are already nervous over the global growth outlook. The recent decline in long-term Treasury yields and a flattening yield curve have raised fears of a slowdown in the U.S. and dimmed appetite for risk assets.
Among other movers on the BSE on Monday, UltraTech Cement tumbled 4%, Ambuja Cements sild 3.3%, and ACC shed 2.4%. Morgan Stanley said in a report that while the cement industry raised prices last month, their channel checks showed a reversal in price trends in December.
Kotak Mahindra Bank fell 6.6%. The private lender on Monday filed a writ petition with the Bombay High Court against the Indian central bank's decision that the its issue of perpetual non-convertible preference shares does not meet the regulator's requirement for promoter shareholding dilution.
The writ petition by Kotak has come as the bank is nearing the deadline of Dec. 31 imposed by the Reserve Bank of India to reduce promoter holding to 20% of its paid up capital. In August, founders of Kotak Mahindra Bank, including Managing Director and Chief Executive Officer Uday Kotak, had reduced their stake in the lender to 19.7% from 30% via the issue of these preference shares.
Indian Oil advanced 3.4%, shrugging off the weak broader market cues, after Morgan Stanley raised the fuel retailer to 'overweight.'