Mumbai: Shares fell 1.2% on Wednesday to their lowest close this month as high crude oil prices sparked concerns of a possible increase in domestic auto fuel prices that could stoke inflation.
Banking shares weighed down sentiment further, falling for the third successive day on worries that rising lending rates in the sector would affect demand for loans, even as a sharp increase in deposit rates is likely to squeeze margins.
The main 30-share BSE index shed 238.16 points to end at 19,696.48, its lowest closing in December. It had fallen as much as 1.6 percent in intra-day trade. Twenty seven of its components closed in the negative.
“Markets will run into roadblocks at every rise. There is oversupply, people are yet to take profits off the table,” said Deepak Jasani, head of retail research at HDFC Securities.
“If there is uncertainty, the decline should accentuate in the next few weeks,” he added.
Investor sentiment took a beating on speculation of an increase in petrol and diesel prices, after crude prices touched a 26-month high of over $90 a barrel on Tuesday. Earlier in the day, an Economic Times report pegged the likely increase at Rs 2per litre.
Oil secretary S. Sundareshan told reporters India will soon take a decision on raising diesel prices, in an effort to lower the government’s subsidy bill and boost the financial health of oil marketing firms.
India ended state controls on pricing of petrol in June and raised prices of diesel, cooking gas and kerosene, but has ruled out full deregulation of diesel prices in the near future.
Shares in state-run oil marketing firms gained, with Indian Oil Corp ending up 0.8%, Hindustan Petroleum Corp rising 3.4 percent and Bharat Petroleum Corp gaining 2.1%.
By 2:30pm, US crude for January fell 83 cents to $87.99, after touching $90.76 on Tuesday, the highest price since October 2008. The 50-share NSE Nifty index closed down 1.2% at 5,903.70 points.
“There is concern over a fuel price hike, this will add to inflation pressure. This is going to be negative for the overall market,” said K.K. Mital, chief executive for portfolio management services at Globe Capital Markets.
Annual headline inflation in India was 8.58% in October, well above the Indian central bank’s end March target of 5.5%.
State-run explorer Oil and Natural Gas Corp closed up 0.5% after rising as much as 2% in intra-day trade. The company said on Tuesday its board would meet on Dec. 16 to consider a bonus share issue, stock split and payment of a special dividend ahead of a planned share sale.
Banking stocks led the losses, with top lender State Bank of India, which raised deposit rates by as much as 150 basis points from Tuesday, falling 2%. Rival ICICI Bank shed 0.4%, while HDFC Bank slid 3.1%.
Metal shares also ended lower on weak metals prices. Tata Steel fell 2.5%, Hindalco shed 2.1%, while Sterlite ended 1.8% lower.
Largest-listed firm Reliance Industries lost 1.1% to Rs 1,019.10, after making gains in the past few sessions.
In the broader market, the undertone was bearish, with losers 4.1 times the number of gainers on moderate volume of 495 million shares.
Packaging company Uflex Ltd fell 16.4% to Rs 163 after a court held its chairman guilty in connection with a land allotment case.
State Bank of Bikaner and Jaipur rose 6.3% after the company said its board would meet on Dec. 10 to approve an up to 8 billion rupee rights issue.
Airline stocks fell 2-7% on concerns over margins after the aviation sector regulator intervened to cap excessive fares and said it will monitor route-wise tariff at regular intervals.