The contagion effect of bad loan waiver cast its thick, long shadow on stocks today as an anxious Sensex gave up over 166 points to close at a two-week low of 31,096.
Investors remained on the sidelines as they waited for key macroeconomic data -- IIP and inflation -- amid a fall in global peers. Capital goods, banking and consumer durables found themselves on a sticky wicket.
"Bad loans, averaging three quarters of PSU banks' net worth, looked to be haunting the banking stocks as the bankers headed for a meeting with the finance minister," said Anand James, Chief Market Strategist, Geojit Financial Services Ltd.
The banking index betrayed its nervousness, down 1.02 per cent, even after Finance Minister Arun Jaitley said the RBI is at a fairly advanced stage of preparing a list of borrowers where NPA resolution is required under the insolvency law and action on this front is expected soon.
Hit by foreign capital outflows, the Sensex closed at 31,095.70, down 166.36 points, or 0.53 per cent. This is the lowest reading since May 26 when it ended at 31,028.21.
The gauge had gained 48.70 points on Friday.
The 50-issue NSE Nifty ended lower by 51.85 points, or 0.54 per cent, at 9,616.40 after cracking below 9,600.
The political state of flux in the UK after a mixed mandate and upcoming results of the first round of France's parliamentary elections kept investors on tenterhooks. There was also caution ahead of this week's US Federal Reserve policy meeting.
Participants also kept track of key economic data - index of industrial production (IIP) for April and consumer price index (CPI) based inflation for May - slated for release after market hours.
The rupee's loss of ground against the dollar -- down 20 paise at 64.44 -- gave bears more ammo to hit the sell button. The broader markets went down too.
Foreign funds net sold Rs 100.99 crore last Friday, as per provisional figures.
L&T took the severest blow with a loss of 2.29 per cent. Tata Motors, Wipro, Bajaj Auto, and RIL followed.
Banking stocks reeled after the Maharashtra government on Sunday decided to waive farms loans of small and marginal farmers. The impact was clear: ICICI Bank fell 1.88 per cent, SBI 1.20 per cent and Axis bank 1.18 per cent. Others including, Union Bank, Canara Bank, Bank of Baroda and PNB, were down by up to 4.58 per cent.
Jewellery stocks rallied by up to 1.90 per cent after the GST Council on Sunday decided to reduce rates for jewellery making charges to 5 per cent the from 18 per cent earlier. Tribhovandas Bhimji Zaveri climbed 1.90 per cent and Gitanjali Gems 1.54 per cent.
Asian stocks ended weak while premier indices in Europe moved lower.
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