Mumbai: Indian shares eased 0.1% on Monday, with banks leading the losses as rising inflation sparked fears the central bank may withdraw more liquidity support soon and raise rates early next year.
Investors were, however, comforted after after Abu Dhabi bailed out debt-stricken fellow emirate Dubai, sending global stocks higher and weakening the dollar.
Indian wholesale prices rose faster-than-expected 4.78% in November, with the food price index soaring an annual 16.71%.
“There is an inflationary pressure on food items. It is a matter of concern,” finance minister Pranab Mukherjee said after the data.
Leading lender State Bank of India dropped 0.8% while rivals ICICI Bank and HDFC Bank shed 1.5% each.
“Inflation data has hit the bank stocks today. I definitely think that from January onwards, we will see some liquidity tightening measures,” said Vaibhav Sanghavi, director at Ambit Capital.
The 30-share BSE index closed down 0.13%, or 21.48 points, at 17,097.55, after rising as much as 0.9% in early trade on the Dubai bailout. Seventeen of its components closed in the red.
Abu Dhabi provided its debt-laden neighbour Dubai a $10 billion lifeline to last its troubled flagship company until the end of April, heading off a bond default on payment day.
“The fact that Abu Dhabi has supported Dubai does not mean that the problem is over. Further bad news is not ruled out from Europe,” Sanghavi said.
“There is neither excitement, nor pessimism in the market. It is just going through a consolidation phase.”
The benchmark index has rallied more than 77% so far this year, fuelled by foreign buying of stocks.
According to data from Nomura, foreign funds have bought $16.5 billion of Indian equities so far this year.
In the broader market, losers outpaced gainers in the ratio of 1.5:1 on relatively low volume of 318 million shares.
Software services companies gained on better outlook with Infosys Technologies hitting a record high of Rs2,519.90, before ending at Rs2,498, up 1.8%.
Wipro rose 2.2% to Rs658.75.
“Indian IT companies are on a much firmer footing than even one quarter back, with much evidence pointing to at least 15% revenue growth in FY11,” Edelweiss said in a note last week.
Cement companies climbed as demand picked up in western and southern India, analysts said. ACC and Grasim climbed 5.3% and 2.8% respectively.
The 50-share NSE index shed 0.2% to 5,105.70.