Mumbai: Markets dropped 0.2% in choppy trade on Monday as high inflation and interest rates in Asia’s third-largest economy and the escalating Greek debt crisis prompted investors to pare exposure to risky assets.
Shares in Sun Pharmaceutical rose as much as 3.8% to their highest level in nearly a month after the the leading drugmaker by market value reported a 12% rise in quarterly profit, beating forecasts.
The main 30-share BSE index was down 0.19% at 18,230.70 points by 11:30am, after having risen as much as 0.62% earlier, with 17 of its components losing ground.
The market is down nearly 5% so far this month.
The broader 50-share NSE Index fell 0.15% to 5,467.70 points. The undertone was, however, positive in the broader market with gainers leading losers in the ratio of 1.7:1 on a total volume of about 185 million shares on the NSE.
“The market will remain weak on headwinds like rising inflation that could lead to more interest rate hikes and put pressure on the margins of companies and asset quality of banks,” said Arun Kejriwal, director of research firm KRIS.
India’s headline inflation eased to 8.66% in April, but upward revisions to past readings and the prospect of higher energy prices will keep pressure on the central bank to raise interest rates in June and maintain its hawkish stance.
The Reserve Bank of India this month raised rates by a higher-than-forecast 50 basis points and said it was willing to sacrifice a bit of growth to tame inflation.
Most economists in a recent Reuters poll expect the Indian central bank, which has been one of the most aggressive of major central banks in tightening policy, to raise rates by at least another 75 basis points in 2011.
Kejriwal said investor sentiment could get a boost from normal monsoon rains, which are vital for boosting farm production and rural incomes in the nation of more than 1.2 billion people.
“Anything less than normal would be very bad news for the markets because the overall mood is so bad now,” he said.
The annual monsoon rains have hit the southern state of Kerala two days earlier than expected, weather officials said on Sunday, boosting prospects for a harvest that could spur India’s economy.
Cairn India was down 2.2% at Rs 339 after a source told Reuters a government panel would recommend the operators of its oil field must share the royalty burden in proportion to their stake in the project.
This could derail Vedanta Resources’ $9.6 billion deal for Cairn India. Cairn Energy agreed in August to sell a majority stake in its Indian unit to Vedanta, but the deal has been delayed due to a dispute over royalty payments.
Reliance Communications fell nearly 1% to Rs 84.25, India’s No. 2 carrier owned by billionaire Anil Ambani, is seen posting a 75% drop in its quarterly net profit, marking the seventh straight quarter of falling profit.
Shares in Mahindra and Mahindra were trading 0.3% up at Rs 706.80. India’s largest utility vehicles maker will report its quarterly results later in the day and analysts expect it to post a 19% rise in net profit.
Asian stocks were pinned in tight trading ranges as weak data and the Greek debt crisis kept market players on the sidelines.
European authorities are likely to deliver their verdict this week on Greece’s faltering drive to bring its budget deficit under control after a recent spell of bad news raised the spectre of a default.
Lanco Infratech was down 5% at Rs 32.15, after the infrastructure developer posted a drop of nearly 3% in its fiscal year 2011 net profit.
IVRCL Ltd was trading 2.3% higher at Rs 70.65 after the company said it had won orders worth 8.94 billion rupees.