Reuters

Indian shares fell over 1% yesterday, posting their biggest single-day decline in 1-1/2 months as blue-chips slipped on caution ahead of the US Federal Reserve’s two-day meeting while foreign portfolio sales also weighed on sentiment.

The 50-share NSE index closed below key 8,000-level alongside global stocks that slipped to one-month lows as investors await clues on whether the US central bank could raise interest rates sooner than previously expected.

Overseas investors sold index futures worth of Rs13.94bn ($228.2mn) and cash shares worth of Rs746mn on Monday, exchange data showed.

Indian indexes touched record highs last week, driven by foreign investors who have pumped in Rs14.18bn in shares so far this year, on hopes reforms by Narendra Modi-led government will revive growth in Asia’s third largest economy. “Looking at global markets, the US Fed has been hinting at tightening of interest rates after following loose monetary policies for past six years. This could lead to sell off in equity in emerging markets and impact India also,” said Atul Kumar, head of equity funds at Quantum AMC.

The broader NSE index lost 1.36%, or 109.10 points, to end at 7,932.90. Earlier, it hit an intraday low of 7,925.15, the lowest since August 27.

The benchmark BSE index fell 1.21%, or 324.05 points, to end at 26,492.51.

Both the indexes saw their biggest single-day fall since August 1.

Blue-chips led the declines. Reliance Industries fell 2.3%, while Axis Bank ended lower 3%.

Oil and Natural Gas Corp fell 2.9% while Tata Motors lost 2.5%.

Among other major losers, State Bank of India fell 2.3% and Larsen & Toubro ended down 2.9%.

Yes Bank fell 4%, extending Monday’s 5.2% slump after MSCI excluded the lender from its standard and mid-cap indexes.

However, Colgate-Palmolive (India) rose 2.8% after Credit Suisse upgraded the stock to “outperform” from “underperform,” saying competitive risk from Procter & Gamble Hygiene and Health Care Ltd has abated.

Meanwhile, the rupee recovered yesterday from a one-month low hit in the previous session on bargain-hunting, but sentiment was broadly cautious a day before the outcome of the Federal Reserve’s meeting.

Emerging market assets are increasingly pricing in the prospect of reduced global liquidity, as seen by the biggest single-day decline of the rupee in nearly one-and-a-half months on Monday.

But traders say the rupee could avoid any major shocks, with the Reserve Bank of India having built hefty foreign exchange reserves and on inflows of longer-term money from overseas into domestic markets.

“The fund flows in the market have been good and hence there is not much panic expected this time around despite the uncertainty about Fed meet,” said Unnati Parekh, head of currency derivatives at Kanji Forex, a debt brokerage in Mumbai.

“Any fall in the local unit, will be gradual.”

The partially convertible rupee ended at 61.0550/0650 per dollar, compared to its close of 61.13/14 on Monday.

The narrowing of the trade deficit also aided the rupee, with the August number shrinking to $10.84bn last month from a 12-month high of $12.23bn in July.

But in the near-term most traders expect the local unit to continue to struggle against the dollar, with some pointing out that the rupee may slide to 61.70-62levels if the key 61.35 level is breached.

In the offshore non-deliverable forwards, the one-month contract was at 61.43 while the three-month contract was at 62.04.