Mumbai: Indian shares shed 0.2% on Thursday after an initial rise to a 17-month high triggered profit-taking, but slower-than-expected inflation kept the undertone firm.
Export-driven outsourcers such as Infosys Technologies and Tata Consultancy that get more than half their revenue from North America fell as the rupee climbed towards a 13-month high.
Financial issues such as State Bank of India and ICICI Bank rose on hopes the central bank would hold rates at its policy review on Oct. 27 to help support consumer spending.
Annual inflation rose at an unexpectedly slower pace at the start of October, easing pressure on the central bank to tighten its monetary stance at the review.
The widely watched wholesale price index (WPI) rose by 0.92% in the 12 months to 3 October, well below market forecasts but above the previous week’s 0.7% annual rise.
Analysts expect the central bank to talk tough on inflation but hold off for now on an inevitable increase in interest rates when it reviews policy as fostering a recovery in growth takes precedence.
“The central bank is likely to hike rates in the first quarter of 2010 rather than now because some of the rise in industrial production and wholesale prices is temporary,” said Ramya Suryanarayanan, economist at DBS in Singapore.
The 30-share BSE index closed down 0.21%, or 35.91 points, at 17,195.20, with 18 of its components declining. It rose to 17,350.39 in early deals, its highest since 20 May 2008.
Rajen Shah, chief investment officer at Angel Broking, said the market was fairly priced after the sharp rally this year.
“We are advising our clients to gradually book profits and free more cash,” he said.
The benchmark index has more than doubled from its 2009 low in March and is up around 78% since the start of January, bolstered by foreign portfolio investment of $13 billion so far this year.
The inflow has been rising on the back of a recovering economy, with August industrial output growing an annual 10.4%, the fastest pace in 22 months.
The large foreign investments have underpinned the rupee, which climbed to 45.8 against the dollar in early trade taking gains to 14 percent from a record low in early March and spooking exporters.
Infosys fell 1.8% to Rs2,215.65 and bigger rival Tata Consultancy dropped 1.7% to Rs582.45.
“When most of the earnings are in dollar terms, the dollar depreciation is no doubt a negative for the IT sector and it would have an implication on bottomline as well as topline,” said Manik Taneja, analyst at Emkay Global Financial Services.
State Bank, the country’s leading lender, advanced 2.7% to Rs2,330.45 and rival ICICI Bank rose 1.7% to Rs935.90 on hopes an expanding economy would boost demand for loans.
Morgan Stanley raised its forecast for India’s economic growth to 6.4% for the fiscal year to March on robust factory data and said policy rates could be rise before end-2009 if the expansion was maintained.
Energy giant Reliance Industries, which has the heaviest weight in the main index, shed 0.3% to Rs2,171.40 as investors locked in profits after the stock had climbed 3.7% over two sessions.
A senior company official said on Wednesday Reliance could finalize a deal to buy refinery and petrochemical units in the United States and Europe by end-2009.
Housing Development Finance Corp lost 1% after rising nearly 4% over the two previous sessions, while Oil & Natural Gas Corp declined 0.4% after gaining 6.7% over four sessions.
In the broader market, losers and gainers were almost equal on relatively higher volume of 589 million shares.
The 50-share NSE index finished 0.18% lower at 5,108.85.
European shares tested one-year high early and the FTSEurofirst 300 index of top European shares was trading 0.6% higher at 1032 GMT.