Indian stocks declined, with the benchmark index poised for its biggest two-day loss in a month, after the central bank unexpectedly raised borrowing costs last week to cool inflation.

State Bank of India plunged 4.1 percent, the biggest slump in two months. The 13-member S&P BSE Bankex tumbled 3.7 percent after falling the most in two weeks on Sept. 20. Bharti Airtel Ltd., the nation’s largest mobile-phone company with $ 9 billion of dollar debt, retreated the most in three weeks. The rupee weakened for a second day.

The Sensex decreased 1.2 percent to 20,030.23 at 11:31 a.m. The gauge lost 1.9 percent Sept. 20 after the Reserve Bank of India increased the repurchase rate for the first time since 2011. Nomura Holdings Inc. said that day the central bank will boost rates further to rein in consumer-price gains that have averaged 10 percent this year. The RBI acted two days after the Federal Reserve decided to keep stimulus.

“The RBI has signaled its intent to sacrifice growth at the margin as consumer inflation is running ahead of comfort,” Dipen Sheth, head of institutional research at HDFC Securities Ltd., said on Bloomberg TV India today. “Markets were clearly surprised by the rate increase.”

State Bank plunged to 1,675.5 rupees, the most since July 16. Bank of India and Bank of Baroda fell at least 5.6 percent, among the top losers today on the MSCI Emerging Markets Index. Housing Development Finance Corp. slumped 3.9 percent, headed for the lowest price since Sept. 6.

Bharti Airtel declined 3.1 percent to 333.40 rupees after dropping 2.8 percent on Sept. 20. Carmaker Maruti Suzuki India Ltd. retreated 3.6 percent, the biggest loss in a month.

Fed Tapering

Raghuram Rajan, who took charge of the RBI on Sept. 4, increased the benchmark rate by a quarter point to 7.5 percent amid the weakest economic growth since 2009. All 36 analysts in a Bloomberg survey forecast no change. The move will arm Rajan against the inevitable paring of U.S. stimulus, according Vikas Babu, a trader at state-owned Andhra Bank in Mumbai.

Federal Reserve Bank of St. Louis President James Bullard, a voter on policy this year who has backed record stimulus, said the Fed may make a small cut to bond purchases in October after its narrow decision this week to refrain from reducing its $ 85 billion in monthly asset purchases.

Overseas investors bought a net $ 576 million of domestic shares on Sept. 19, the highest since the $ 1.2 billion purchase on Feb. 7, data from the regulator show. That took this year’s net inflow to $ 13.2 billion, the second-highest among 10 Asian markets tracked by Bloomberg. Concerns the Fed would scale back stimulus prompted foreigners to pull $ 3.7 billion from Indian equities in the three months ended August, sending the Sensex to an 11-month low on Aug. 21.

The Sensex has risen 3.1 percent this year in rupee terms and is valued at 13.9 times projected 12-month earnings, data compiled by Bloomberg show. It has lost 8.9 percent this year in dollar terms. The MSCI Emerging Markets Index trades at 10.7 times, the data show.

To contact the reporter on this story: Santanu Chakraborty in Mumbai at

To contact the editor responsible for this story: Michael Patterson at

Enlarge image Bombay Stock Exchange

Bombay Stock Exchange

Bombay Stock Exchange

Dhiraj Singh/Bloomberg

Pedestrians walk down a street with electric cables hanging overhead as the Bombay Stock Exchange stands in the background, left, in Mumbai.

Pedestrians walk down a street with electric cables hanging overhead as the Bombay Stock Exchange stands in the background, left, in Mumbai. Photographer: Dhiraj Singh/Bloomberg