Sensex Falls 3% (Feb/16/09)

The BSE Sensex extended losses to more than 3 percent on Monday after an interim budget failed to deliver on investor expectations on a stimulus plan for sectors such as autos and construction, while a higher borrowing plan send bond yields higher.

"The interim budget did not contain policy response despite the challenging economic situation," said Jigar Shah, senior vice-president, Kim Eng Securities. Banks led the losses after acting Finance Minister Pranab Mukherjee proposed an increase in government borrowing, sending bond yields higher. Traders said the budget was populist and aimed to woo voters ahead of general elections due by May. Mukherjee said the fiscal deficit had risen to 6 percent of gross domestic product in 2008/09 from a planned 2.5 percent, a rise that could shake investors increasingly wary of emerging markets.

He predicted a deficit of 5.5 percent of GDP in 2009/10 but implied this could rise as government spending may have to jump later this year to shield the economy from a global slump and stem job losses, as the government tried to woo voters ahead of a general election.
"This is a political budget but does not give much confidence on how it will help revive growth," said Rupa Rege Nitsure, chief economist at Bank of Baroda. Top lender State Bank of India fell 5.03 percent to 1,133.95 rupees and rival ICICI Bank dropped 4.25 percent to 415.90 rupees.
Bond yields rose with the 2018 bond yield climbing to 6.37 percent from 6.17 percent at the previous close on supply worries. Leading carmaker Maruti Suzuki dropped 2.4 percent to 614.90 rupees and top truck maker Tata Motors was down down 0.8 percent at 136.7 rupees.
Energy group Reliance Industries, which has the highest weight in the index, dropped 4.6 percent to 1,327.60 rupees. The 50-share NSE Nifty index was down 3.11 percent at 2,856.80.

(For Quotes and Interactive Charts of BSE Sensex click http://in.reuters.com/money/quotes/chart?symbol=.BSESN)