Mumbai: Indian shares fell 2.9% on Wednesday to their lowest close in three weeks, as doubts about the health of the global economy dampened sentiment worldwide and sparked profit-taking on an 86% rally since early March.
Energy giant Reliance Industries, which has the most weight in the main index, led the losses falling for a third day following an unfavourable court ruling on gas supplies.
“The market is seeing a long-overdue correction. The US market is also showing weakness and the global markets are reacting as they all take cues from each other,” Deven Choksey, chief executive of KR Choksey Shares & Securities, said.
The benchmark 30-share BSE index ended down 2.91% or 435.07 points, at 14,522.84, its lowest close since 22 May. All but one fell.
Reliance, dropped 4.2% to Rs2,050.80, its lowest close in a month.
Engineering and construction giant Larsen & Toubro, which had almost tripled over the past three months, shed 3.9% to Rs1,466.55 on profit-taking.
State-run explorer Oil and Natural Gas Corp fell 5.4% to Rs1,064.25, while Tata Steel dropped 7.5% to Rs417.
In the broader market, losers outran gainers 3 to 1 on more than average volume of 541.3 million shares. The 50-share NSE index fell 3.6% to 4,356.15, to lowest since January 2009.
Traders said concerns have emerged about expensive valuations, with worries about the global economy and an uncertain outlook for corporate earnings growth weighing on investor confidence.
“The market is trading in a band where the valuations are not comforting to many investors. They are staying on the sidelines,” S Ranganathan, head of research at LKP Shares, said.
The BSE index is still up 80% from its 2009 low in early March, driven by foreign portfolio inflows of almost $8 billion.
A stronger mandate won by the ruling Congress party-led coalition in May has raised hopes for quick paced reforms and stake sales to attract investments.
Although the market is vulnerable to bouts of profit-taking, expectations the government will unveil reform plans in its annual budget on 6 July provide some support, traders said.
“There could be a lot of volatility in the run up to the budget. That is more certain than anything else for this market,” Ranganathan said.
India’s wholesale price index (WPI) is forecast to have fallen in the year to 6 June for the first time in at least three decades, heralding a period of annual deflation that analysts said could last up to four months.
The data is due by midday on Thursday.
Most Asian markets were lower on Wednesday, with MSCI’s measure of Asian markets other than Japan down 1.4% Japan’s Nikkei rose 0.9%.
European equities also fell, mirroring losses at US stock markets on Tuesday after several economic indicators this week came in below expectations, supporting the view that equity and commodity prices have risen too rapidly.