Mumbai: Indian shares erased early gains and fell 0.9% on Wednesday as outsourcers slid on worries a surging rupee would hit the profit margins of the export-driven sector.
The rupee leapt to its highest in more than a year against the dollar mainly on the back of large equity inflows over the past one month, taking its gains to 12% from a record low in early March.
The jump could squeeze the margins of top outsourcers such as Tata Consultancy Services, Infosys Technologies and Wipro that get more than half their revenue in dollars, traders said.
Metals stocks such as Sterlite Industries and Hindalco Industries rose in line with resources stocks in the region that were boosted by the dollar’s weakness.
The 30-share main index closed down 151.88 points at 16,806.66, with two-thirds of its stocks in the red. It had started higher and initially rose nearly 1%, mirroring the gains in Asian markets. The 50-share NSE index closed 0.83% lower at 4,985.75.
“The mood is turning cautious, which is rational considering the rise we have seen this year,” said Amitabh Chakraborty, president of equities at Religare Capital.
“Earnings are expected to be good, but valuations are already looking stretched,” he said.
The benchmark index has risen more than 74% this year, boosted by foreign portfolio inflows of $12.7 billion.
In the broader market, gainers marginally beat losers on relatively heavy volume of 589 million shares.
“Intra-day volume is going up, as traders do not like to keep positions open,” Chakraborty said.
Traders said they expected the market to move cautiously until quarterly earnings, which would be kicked off by software services bellwether Infosys on Friday, come through.
Tata Consultancy, Infosys and Wipro are expected to report quarterly profit rose 5-26% from a year ago, but the rupee’s rise could dent margins in the coming quarters.
Infosys closed 2.55% lower at Rs2,251.85, while larger rival Tata Consultancy shed 3.3% to Rs592.95 and Wipro fell 4.3% to Rs573.10.
Banking stocks dropped after a higher start as traders took profits after the sector index climbed nearly 18% since the start of September.
State Bank of India shed 2.7% to Rs2,101.35 while private sector ICICI Bank closed 2.2% lower at Rs917.30.
Non-ferrous metals maker Sterlite firmed 5.5% while leading aluminium producer Hindalco added 1.6%.
Tata Steel, the world’s eighth-largest steel maker, climbed 1.2% to RsRs516.70.