The BSE Sensitive Index closed 1.4% lower at 16,705.83 yesterday. Growth concerns have pushed down the Sensex 9% from this year’s high set on February 21
Bloomberg/Mumbai

India’s stocks slumped the most in Asia yesterday after the central bank unexpectedly refrained from cutting interest rates. Bonds and the rupee extended losses after Fitch Ratings lowered its credit outlook to negative.
Benchmark government 10-year notes slid the most in two months after Fitch cited slowing growth and the nation’s budget deficit for its decision that came after the BSE India Sensitive Index closed 1.4% lower at 16,705.83 in Mumbai.
Governor Duvvuri Subbarao left the key repurchase rate at 8%, a stance that contrasts with rate cuts in Australia and China in the past two weeks as the impact of Europe’s debt crisis fans through Asia and dominates the agenda of a Group of 20 summit starting in Mexico yesterday. Subbarao’s room to counter the weakest Indian growth in almost a decade is being limited in part by a plunge in the rupee, which has stoked an inflation rate already above 7%.
“This is a shocker,” said DK Aggarwal, who manages about $100mn of local assets as chairman at SMC Wealth Management Ltd in New Delhi. “A rate cut was a must because the growth was slowing. The confidence has taken a beating.”
The 30-stock gauge had risen as much as 0.9% before the Reserve Bank of India’s announcement.
Only four of 25 economists in a Bloomberg survey predicted the RBI’s decision, with 19 expecting a 0.25 percentage-point cut and the remainder a half-point reduction.
Growth concerns have pushed down the Sensex 9% from this year’s high set on February 21.
Prime Minister Manmohan Singh is grappling with an economy hobbled by a record trade deficit and a budget shortfall that has exceeded targets, corruption scandals and infighting in the coalition that has stymied his efforts to lure more foreign investment.
Gross domestic product climbed 5.3% in the quarter ended March from a year ago, the least since 2003, imperilling the prime minister’s goal of 9% annual gains to reduce poverty. Standard & Poor’s has warned it may cut the country’s credit rating to so-called junk status.
“While growth in 2011-2012 has moderated significantly, headline inflation remains above levels consistent with sustainable growth,” the RBI said today.
The rupee weakened 0.8% to 55.92 against the dollar, the lowest closing level this month.
Fitch affirmed its sovereign rating for India at BBB-, the lowest investment grade. Standard & Poor’s warned on June 11 that it may cut India’s rating after lowering the outlook to negative in April.