Mumbai: Indian shares dropped 1.64% on Thursday to end just above a three-month closing low set earlier this week, with financial stocks falling as a rise in food prices heighted concerns of broader inflation pressures.
Banks stocks fell on concerns that inflation might push bond yields up, eating into profits from treasury income, and lead to the central bank raising interest rates. Sector leader State Bank of India fell 2.5%, and ICICI Bank and HDFC Bank ended down 1.1% and 0.2% respectively.
The pace of annual food inflation picked up for a second week, data showed, strengthening the case for more steps in the budget to tame prices after the central bank tightened monetary policy last week.
The 30-share BSE Index fell 271.10 points to 16,224.95, unwinding most of a 2.06% rise on Wednesday to end about 60 points above Tuesday’s close, which was its lowest finish since early November.
“In the short term the market looks weak. FIIs are withdrawing money,” said D.D. Sharma, senior vice president at Anand Rathi Securities, refering to foreign investors.
“Domestic institutions which are otherwise active in the secondary market, they are keeping it reserved for PSU (public sector undertaking) disinvestments,” he added.
World markets were also weak. At 1101 GMT, the pan-European FTSEurofirst 300 index was down 1% and MSCI’s measure of Asian markets other than Japan was down 1.1%.
State-run oil marketing companies were mixed after a report recommended deregulating fuel prices, with traders not convinced the government would take such steps.
Bharat Petroleum Corp and Indian Oil Corp rose 0.4% and 1.1% respectively, but Hindustan Petroleum Corp fell 0.8%.
“While we await government action on this report, we believe the suggestions are likely too aggressive to be implemented in current form, given inflation concerns, implementation issues and political considerations,” Goldman Sachs said in a note.
“A one-time hike in gasoline and diesel prices is all that might happen, in our view,” Goldman Sachs added.
Non-ferrous metals producer Sterlite Industries and aluminium maker Hindalco fell 3.6 and 6.4% respectively.
Shanghai copper fell more than 3%, while London futures pared a similar slide in the previous session, as worries about the impact of tighter monetary policy continue to unsettle the market.
Tata Steel, which is the world’s eighth-largest steel maker by output, shed 3.8%.
In the broader market, decliners outnumbered gainers in the ratio of 2.4:1 in a volume of 364 million shares, lower than last week’s daily average of 411 million shares.
The 50-share NSE index fell 1.75% to 4,845.35.