Mumbai: Indian shares fell 1.5% on Wednesday as jitters over below-normal rainfall hurting economic growth, weak US housing data and tepid overseas markets drained investor confidence.
A stocks slump in China also put the spotlight on pricey valuations and raised doubts about whether shares had run up too fast this year.
Leading lender State Bank of India, energy giant Reliance Industries and outsourcer Infosys Technologies led the losses.
Glenmark Pharmaceuticals plummeted as much as 17.4% to its lowest in more than a month after the company and partner Forest Laboratories said their lung drug failed in a mid-stage trial.
The stock later pared some losses to end down 14.7% at Rs223.20.
Some analysts say there is still enough liquidity flowing into the market to support shares, and long-term investors will look to buy on dips.
“The market is still moving sideways, and there may not be a significant fall immediately,” Avinash Gupta, assistant vice president of equity research at Bonanza Portfolio Ltd, said.
“People are expecting the economy to improve by the third quarter, but even then if it doesn’t there will be a selloff.”
The 30-share BSE index ended down 225.62 points at 14,809.64, with 27 stocks declining, after falling as much as 2.3% during trade. The 50-share NSE index fell 1.% percent to 4,394.10.
The benchmark had risen 1.7% on Tuesday, after dropping 4.1% to its lowest close in a month in the previous session.
“Yesterday, the market bounced only because we had a huge fall on Monday. Today, I am not surprised the market is resuming its downward slide because valuations are still stretched,” Gajendra Nagpal, chief executive of Unicon Financial, said.
“The market still has not discounted the impact from the weak monsoon.”
Weak rains - crucial for India’s domestic-demand-led economy - have pushed the country to the brink of drought, putting pressure on food prices and energy supplies and imperiling economic growth.
Also, doubts about the pace of a global economic recovery have emerged in the wake of a slew of recent downbeat data, pushing down equity markets worldwide on fears about stocks having risen ahead of fundamentals.
Most analysts agree the Indian market is running out of steam after nearly doubling in five months and may be poised for a correction as investors grow wary of high valuations, a bad monsoon and looming inflation.
Some private economists have said poor rains could shave as much as 2 percentage points off growth in the fiscal year that ends in March. Traders say the market will be choppy until clarity emerges on the government’s response to the weak monsoon.
No. 2 outsourcer Infosys fell 1.1% to Rs1,950.70, while government-run State Bank shed 2.5% to Rs1,691.10.
Reliance, India’s top listed firm with the most weight in the main index, dropped 3.2% to Rs1,883.45.
In the broader market, losers led gainers 1,501 to 1,146 on relatively average volume of 402.5 million shares.
Asian shares were lower, with Japan’s Nikkei falling 0.8% while MSCI’s measure of other Asian markets was down 1.1%.