Mumbai: Indian shares pulled back from a 2.5% fall and ended down 0.4% on Wednesday after a strong rebound in industrial output and higher European peers helped revive investor interest.
The market had dropped more than 5% in the previous five trading days on worries poor monsoon rains would dent economic growth and the concerns weighed on companies such as engineering and construction firm Larsen & Toubro.
Outsourcers Infosys Technologies and Tata Consultancy Services also fell after rising for two days on profit-taking and caution ahead of a rate decision in the United States, their main market.
But telecoms firm Bharti Airtel, which is in exclusive merger talks with South Africa’s MTN, climbed 5.8% to Rs404.85, making it the top gainer on the main index.
Bharti shares, which rose as much as 6.7% during trade, were a good defensive bet, but lack of clarity on the structure of a possible deal with MTN remains an overhang, JP Morgan analyst Manoj Singla said in a note to clients.
“Weighing the positives and negatives, we believe that Bharti is a top-tier player with quality management and a strong execution track record available at cheap valuations and hence has limited absolute downside,” Singla, who has a “neutral” rating on the stock, said.
Macquarie Research analyst Shubham Majumder reiterated his “outperform” rating on Bharti, and said a key trigger for the stock’s near-term performance would be the outcome of the MTN deal.
“If the deal fails, markets would react positively,” he said. If Bharti’s raised its offer price by 10 to 15%, the stock could fall about 5%, and if the offer is raised by more than 25%, a 10-15% drop in the share price was possible, Majumder said.
The 30-share BSE index ended down 0.36%, or 54.43 points, at 15,020.16, with 17 stocks declining, after falling to as low as 14,701.05 at one stage. The 50-share NSE index fell 0.3% to 4,457.50.
June industrial output rose 7.8% expanding at its fastest pace in 16 months and beating forecasts by a wide margin as higher salaries of government employees and stimulus spending boosted consumer demand.
Economists said strong momentum in factory output could help mitigate the effects of a poor monsoon season on overall economic growth, but cautioned that the brisk rate of industrial activity might not be sustainable despite other recent positive signals.
“We are not sure 7.8% is sustainable given that the drought is likely to dampen consumption and delay investment,” Atsi Sheth, chief economist at Reliance Equities, said.
Total rainfall since 1 June, the start of India’s four-month monsoon season, has been 29% below normal and the government said on Tuesday that more than a quarter of the country’s districts were prone to drought. With just over 40% of agricultural land irrigated, farm output is heavily reliant on rains and the shortfall could potentially hurt rural demand, which accounts for more than half of India’s domestic consumption.
The BSE index nosed up 0.4% on Tuesday, after shedding 5.6% over the past three sessions.
It had slid 3.25% last week on the rain concerns after jumping 16% over the previous three weeks, buoyed by a worldwide equities rally on strong corporate earnings and improving signs of a global economic recovery.
“The downward trend could continue for a few more days because we just don’t know how much of a negative impact the weak monsoon is going to have,” Ambareesh Baliga, vice president of Karvy Stock Broking, said.
The index has leapt about 87% from a 2009 low in early March, and is up more than 55% this year after slumping by more than half in 2008.
Analysts say a rush of liquidity pouring into equity markets will help support the market in the near term as investors look to buy on dips.
Infosys eased 1.9% to Rs2,042.75, while larger rival Tata Consultancy Services slid 4.1% to Rs519.45. Larsen & Toubro dropped 1.6% to Rs1,421.80.
In the broader market, losers led gainers 1,387 to 1,218 on below-average volume of 376.5 million shares.
Asian shares were lower on Wednesday, with Japan’s Nikkei falling 1.4% while MSCI’s measure of other Asian markets was down 1.4%.