Mumbai: Markets dropped 0.2% in a choppy session on Thursday, with financials leading the fall, reflecting world markets which weakened on US Federal Reserve’s cautious stance on economic recovery.
US Federal Reserve’s June meeting showed officials were concerned with the pace of economic recovery and felt they should be ready to consider additional steps to boost the US economy if an already softening outlook took a noticeable turn for the worse.
Weak monsoon rains in Asia’s third-largest economy also dampened sentiment. A director and spokesman of the weather office told Reuters rains were unlikely to revive significantly in the next week.
India’s monsoon rains, vital for the farm-dependent economy, were 24% below normal in the week to 14 July, reviving fears of crop loss if rainfall remains weak. Slower growth in China also injected caution and curbed risk appetite. Annual economic growth in the world’s fastest growing major economy slowed to 10.3% in the second quarter from 11.9% in the first quarter, in response to credit curbs and the fading of fiscal stimulus.
Financials led the losers with the banking sector index dropping 0.3% after gaining 5.2% over past five sessions.
Mortgage lender Housing Development Finance Corp, which reported a 23-percent jump in its June-quarter net profit, dropped 1%.
HDFC’s core business momentum remains brisk, but its valuations appear full, HSBC said in a note.
Leading lender State Bank of India and rival ICICI Bank dropped 1% each while HDFC Bank shed 1.2%.
The 30-share BSE index dropped for the second day as it closed 0.16% or 28.70 points lower at 17,909.46, with 16 of its components losing ground.
“Indian stocks may be in a zone where they are not looking cheap any more, but it is all about relative attractiveness,” said Nitin Rakesh, CEO of Motilal Oswal’s asset management business.
“If there is growth here, money will continue to flow.”
Indian markets have broadly outperformed many Asian as well as emerging market peers.
For the year to date, India’s benchmark index is up 2.5%, while MSCI’s measure of Asian shares other than Japan has dipped nearly 4%.
The emerging markets index has shed 2.8% so far in 2010.
Foreign funds have poured in $8.2 billion into Indian equities this year, data from the exchange regulator showed.
India has accounted for 59% of the net foreign buying seen so far in 2010 in emerging Asia, excluding China and Malaysia, Credit Suisse said in a note.
Top mobile operator Bharti Airtel was down 0.9% on persistent worries about shrinking margins and rising competition at home.
“Africa provides a long-term diversification for Bharti from India, due to lower competitive intensity,” IIFL said in a note.
“However in India, Bharti’s troubles are some way from being sorted out.”
Reliance Communications declined 1.5% after The Economic Times newspaper reported the telecom operator may have to lower the value of its tower assets being sold to GTL Infrastructure.
Goldman Sachs downgraded state-run refiner Hindustan Petroleum Corp to “neutral” from “buy”.
“Following a sharp rally in the state-owned oil stocks after commencement of fuel pricing reforms, we find the risk-reward for our conviction ideas less compelling than before,” it said in a note.
Goldman also removed Bharat Petroleum Corp and Oil & Natural Gas Corp from its conviction list, but retained a “buy” on these stocks.
Oil secretary S. Sundareshan said there was a scope for government stake sale in ONGC and Indian Oil Corp.
He also said upstream companies, or explorers, would bear about one-third of the estimated 520 billion rupees in revenue losses of state-run fuel retailers in the current financial year.
ONGC closed 1.6% lower while BPCL, HPCL and IOC shed between 3.8% and 6.2%.
IT bellwether Infosys Technologies gained 0.6% after disappointing quarterly earnings had sent the stock down 5.3% over past two sessions.
Tata Consultancy Services closed 1.2% higher ahead of its results scheduled after market hours. A Reuters poll showed analysts expect TCS to report a 15.6-percent rise in net profit.
In the broader market, declining shares outnumbered advancing ones in the ratio of 1.1.1 on a relatively lower volume of 354 million shares.
The 50-share NSE index closed 0.1% lower at 5,378.75 points.