Mumbai: Indian shares erased gains of as much as 1.1% and turned negative on Thursday afternoon on fears a delay in crucial monsoon rains could hurt an already slowing economy.
The annual monsoon rains, a lifeline to the trillion-dollar economy, are expected to be below normal for the first time in four years, the government said on Wednesday.
At 2:13pm, the 30-share BSE index was down 0.3% at 14,381.75 points, with 17 stocks declining, after rising to as much as 14,578.46 earlier.
The 50-share NSE index was down 0.7% at 4,264.70.
Markets rose by 0.8% in the morning led by outsourcer Infosys Technologies and private-sector lender ICICI Bank, as investors covered short positions on the last day of monthly derivatives contracts.
“We are seeing some amount of short-covering and it is being supported by the strong Asian markets,” Ambareesh Baliga, vice president at Karvy Stock Broking, said.
Top mortgage firm Housing Development Finance Corp and engineering and construction firm Larsen & Toubro were among the major gainers, but Oil and Natural Gas Corp (ONGC.BO: Quote, Profile, Research) fell a day after the state-run explorer reported a surprise 16% drop in March-quarter profit.
By 11:22am, the 30-share BSE index was up 0.8% at 14,530.18 points, with 20 stocks advancing, after rising as much as 1.1% earlier. The 50-share NSE index was up 0.5% at 4,312.75.
The benchmark had fallen 6.8% over the past two weeks on profit-taking after a 14-week rally that saw it jump 83%.
“Today we are seeing a normal bounce back after the fall, but is not as strong as we expected,” Baliga said.
Expectations are running high the government’s annual budget on 6 July will relax foreign investment rules, hike spending on infrastructure and kick-off stake sales in state-run firms to reduce a rising fiscal deficit and boost slowing economic growth.
But concerns about high valuations and a delay in monsoon rains, which are expected to be below normal for the first time in four years, will weigh on investor confidence, analysts said.
The June-September monsoon is a lifeline for India’s trillion-dollar economy.
“There is underlying weakness in the market. The monsoon is a definite concern, and it is out of our control,” Baliga said.
“Investors are also toning down their expectations from the upcoming budget.”
The main stock index could decline by 3 to 6 percent from current levels by the end of 2009 as expensive valuations and higher commodity costs temper investor optimism, a senior strategist at Citigroup said on Wednesday.
No. 2 IT-services firm Infosys rose 1.6 percent to Rs1,787.15, while ICICI Bank climbed 2.2% to Rs704.15. HDFC advanced 2.2 percent to Rs2,360.50, while Larsen was up 0.9% at Rs1,522. ONGC fell 1.9% to Rs1,030.80.
In the broader section, gainers led losers by almost 3 to 1 on relatively moderate volume of 151.1 million shares.
More than half its components were part of block deals as funds aligned with the index rejigged their holding ahead of a switch to a free-float market capitalization methodology based on the public shareholding of the firms to calculate the weight of index stocks.
Asian shares were higher on Thursday, with Japan’s Nikkei up 2.1%, while MSCI’s measure of other Asian markets rose 1.5%.