BSE Sensex falls; banks hit as GDP dashes rate cut hopes

Last Updated: Fri, Aug 31, 2012 14:31 hrs

By Abhishek Vishnoi

MUMBAI (Reuters) - The BSE Sensex fell on Friday to its lowest close in four weeks as lenders such as ICICI Bank were hit after stronger-than-expected GDP data dashed hopes for rate cuts next month, while Reliance Industries fell after Citigroup downgraded the stock.

India's gross domestic product grew 5.5 percent in the April-June quarter, just above the 5.3 percent posted in the three months ended in March and slightly higher than forecasts.

Although the data signalled the worst may be over, investors worry that growth will remain lethargic, but not low enough to prompt interest rate cuts from the Reserve Bank of India.

Continued disruptions in Parliament are also reducing the prospect of policy reforms during a time when the country is under threat of credit ratings downgrades from Standard & Poor's and Fitch Ratings.

Investors are now expected to focus on the Federal Reserve Chairman Ben Bernanke's speech later in the day amid hopes he will hit at resuming asset purchases. Potential action from the European Central Bank is also keenly anticipated.

"Rate cut is unlikely in September meeting of RBI," said R.K Gupta, Managing director of Taurus Mutual Fund.

"Market is now concerned on whether there would be a ratings downgrade of India and how would foreign investors react to it," he added.

India's benchmark BSE index fell 0.92 percent, falling to its lowest close since August 3.

The BSE Sensex fell 2.26 percent for the week, after gaining in each of the previous four weeks, and ended up 0.8 percent for the month.

The 50-share NSE index fell 1.06 percent on Friday.

Lenders were among the leading decliners. ICICI Bank fell 1.9 percent and Axis Bank lost 2.1 percent.

UBS downgraded Axis Bank to "neutral" from "buy", citing "increasing" quality risks, "muted" earnings growth and a 28 percent share price increase so far this year.

Public sector banks also edged lower, though they did turn positive at one point after the farming sub-index within the April-June GDP data grew more strongly than expected.

However, the prospect of reduced non-performing assets from rural areas was not enough to keep shares afloat in a down market. State Bank of India fell 0.13 percent, while Bank of India retreated 0.6 percent.

Reliance Industries fell 2.2 percent after Citigroup downgraded the stock to "neutral" from "buy", saying valuations were "not compelling enough" while the near-term earnings outlook was muted.

Shares of the energy conglomerate had a good run in August, but started to slide towards the second half. Reliance shares still posted a 3.1 percent gain for the month.

Software services exporters fell as worries intensified pricing power in the sector would be hit by rising competition and a weaker global outlook.

Infosys fell 1.3 percent, with shares faltering in the last week of August after strong gains earlier in the month that sent shares up 6 percent.

Hero MotoCorp fell 3.3 percent, marking its fifth day of falls on continued worries about a potential slowdown for two-wheeler demand and a pileup of inventory.

However, Bharti Airtel rose 2 percent ahead of its annual general meeting next week on hopes for more details about the wireless service provider's plan to list its telecoms masts unit.

(Additional reporting by Manoj Dharra)

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