Markets close 0.5% down on unsatisfactory IIP

Markets close 0.5% down on unsatisfactory IIP

Mumbai: Indian shares erased early gains and dropped 0.4% on Friday after factory output growth only met estimates, while participants had hoped for a bigger surprise.

Industrial output in October rose 10.3% from a year earlier, matching Reuters forecasts and suggesting the economy maintained a healthy growth rate after a strong September quarter.

“There were expectations built that the IIP number would be higher than what it turned out to be. So the market was disappointed," said Jigar Shah, vice-president of equity sales at Motilal Oswal.

The 30-share BSE index closed down 0.41%, or 70.28 points, at 17,119.03, after rising as much as 0.9% before the data. For the week, it gained 0.1%.

Still, the data reinforced views the economy is picking up steam and the Reserve Bank of India (RBI) would have to start raising interest rates in the first half of next year.

“Recent RBI comments have already indicated that tighter policy is on the way, and this number should reinforce the case for a rate hike early next year," said Brian Jackson, economist at Royal Bank of Canada from Hong Kong.

Banks led the fall, weighed by the rate increase expectations. State Bank of India and ICICI Bank, the country’s top two lenders, fell 1.3% and 1.5% respectively.

Top mobile operator Bharti Airtel dropped 3.2% to Rs331.35, as investors booked profits after the stock rose nearly 22% over 10 sessions.

State-run engineering equipment maker Bharat Heavy Electricals bucked the trend and rose 3.1% to Rs2,364 on better order inflow outlook.

Religare Hitches Harrison said this week Bhel would benefit from the increasing private sector orders, rising concerns on Chinese equipment quality and the government’s contemplation of domestic procurement for all ultra mega power projects.

The brokerage upgraded the stock to ‘buy’ from ‘hold’.

Outsourcer Infosys Technologies climbed 0.4% to Rs2,454.75 on improving outlook.

Bajaj Auto, India’s second-largest bike maker, raced nearly 5% to Rs1,724.50, after Goldman Sachs upgraded the stock to ‘buy’ from ‘neutral’. The stock hit Rs1,732 during trade, its highest level since it was re-listed after restructuring in May 2008.

Twenty-three of the main index’s components closed in the red, while in the broader market losers outpaced gainers in a ratio of 1.6:1 on moderate volume of 408 million shares.

The BSE index has risen more than 77% in 2009, driven by robust inflows from foreign funds.

The 50-share NSE index closed 0.3% lower at 5,117.30 after hitting 5,182.55, its highest since May 2008.