Mumbai: Indian shares fell 2.4% on Monday, dragged by Reliance Industries after a court asked the billionaire Mukesh Ambani-controlled energy group to sell gas at half the government-approved price to his estranged brother’s firm.
The ruling, which can be appealed by Reliance, sent its shares down as much as 7.85%.
Investor confidence in the broader market was also hit by renewed jitters about the global economy, weakening markets across Asia and Europe.
“Our view on the market is that it is too expensive,” Ambareesh Baliga, vice president at Karvy Stock Broking, said. “We’re advising clients to get out and enter the market later.”
Profit-takers targeted engineering and construction conglomerate Larsen & Toubro, which has almost tripled from early March, while non-ferrous metals producer Sterlite Industries dropped as copper prices fell.
The 30-share BSE index ended down 2.38%, or 362.42 points, at 14,875.52, its lowest close in a week, with 20 stocks declining. The 50-share NSE index fell 2.2% to 4,484.
Reliance Industries closed down 7.5% at Rs2,180.45, its biggest one-day percentage drop since 7 January.
The Bombay High Court on Monday asked Reliance to supply 28 million metric cubic metres a day for 17 years at $2.34 per million metric British thermal unit to Reliance Natural Resources, Mahesh Jethmalani, a lawyer for Reliance Natural, said.
On 30 January, the court had issued an interim order saying Reliance Industries was allowed to sell gas at government- approved price of $4.2 per million metric British thermal units from its KG-D6 block in the Krishna Godavari basin, off eastern India.
Shares in Reliance Natural, controlled by Mukesh’s younger brother Anil, leapt 24.1% to Rs108.35, its best close in almost 13 months.
“This is more of a knee-jerk reaction. But valuations for Reliance Industries are still expensive, irrespective of this ruling,” Ambareesh Baliga, vice president at Karvy Stock Broking, said.
Reliance Industries would be fairly valued at about Rs1,800, he said.
The BSE index has risen almost 90% from a 2009 low in early March, largely driven by foreign funds who pumped more than $7.5 billion into the market since mid-March.
Hopes for investor-friendly reforms such as relaxation of foreign investment rules in the pension and insurance sectors, stake sales in state companies and higher infrastructure spending after the ruling coalition was re-elected last month have underpinned the market.
But shares are seen pricey. The market is up 54% this year, after plunging by more than half in 2008 when foreign investors withdrew $13 billion.
“Definitely the market looks stretched. No one wants to buy aggressively as there are genuine concerns that there will be more of a correction,” Arun Kejriwal, a strategist at research firm KRIS, said.
“This is likely to continue for at least a few days, maybe even a week.”
Traders said investors would remain cautious ahead of the annual budget in early July, when the coalition, which was voted back with a stronger mandate, is expected to announce reform plans to boost growth.
Larsen & Toubro eased 4.8% to Rs1,507.10, while Sterlite slumped 7.6% to Rs663.45.
In the broader section, losers led gainers by almost 2.5 to 1 on relatively moderate volume of 486.9 million shares.
Asian shares dropped on Monday, pulling back from eight-month highs hit earlier this month, as investors fretted over whether the global economy had improved enough to justify a further rally.
Japan’s Nikkei eased almost 1%, while MSCI’s measure of other Asian markets slid 2.2%.