Sensex drops 2nd day, euro zone worries linger

Sensex drops 2nd day, euro zone worries linger

Mumbai: Shares erased early gains and dropped nearly 1% on Tuesday, dragged down by weak European markets as worries continued over the euro zone’s debt crisis.

Financials led the decline, dragged by the weakness in the broader market.

Second-largest mobile firm Reliance Communications declined 4.7%, after gaining 26% in previous four sessions, after AT&T denied media reports it was in talks with the company for a transaction.

Top mobile operator Bharti Airtel dropped 3.8% as it said it completed $9 billion acquisition of African operations from Kuwait’s Zain.

The 30-share BSE index declined for the second straight session and closed down 0.98%, or 163.97 points, at 16,617.10 points, its second lowest close in June.

It had risen as much as 0.7% early.

Twenty-three of its components closed in the red.

European shares extended their decline to a third day, on intensified worries about debt levels in the continent and with German utilities weaker as they face a tax hike.

“There could be more pain in the offing in Europe. We do not know if there are more Hungarys in there," said Nitin Rakesh, head of Motilal Oswal’s asset management business.

Rakesh expects the market to consolidate until the uncertainty over Europe is over. He sees support for Sensex at 16,000 points.

Foreign funds, which had pulled out $ 2 billion in May leading to a 3.5% fall in the main index — its first decline since January — have infused around $37 million in June.

The benchmark has still shed 1.9% so far this month.

State-run explorer Oil and Natural Gas Corp and state refiners Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp dropped after the government deferred till next week a decision on raising fuel prices.

“While this will likely come as an immediate disappointment to the street, we would prefer some sustainable policy action with further discussion rather than just an ad-hoc price hike at this time," Goldman Sachs said in a note on Monday.

“We continue to believe that the process of fuel pricing reforms is moving forward and recent government actions indicate that there is an appetite for some tough decisions on energy pricing."

ONGC shed 1.3% while the state-run oil marketing companies lost between 2.5% and 4.8%.

Leading lender State Bank of India shed 0.1% while rivals ICICI Bank dropped 3% and HDFC Bank fell 1.1%.

Price pressures will start to ease if the country gets a normal monsoon season but the central bank will further tighten monetary policy, deputy governor Subir Gokarn said on Tuesday.

Gokarn also said the government may put off reducing fuel subsidies for the foreseeable future to avoid hurting consumers who are already suffering from high food prices.

Metals reversed early gains and closed lower as sentiment for base metals remained fragile, given concerns that the pace of global recovery might slow.

Non-ferrous metals producer Sterlite Industries fell 1.9% while aluminium producer Hindalco and world’s eighth-largest steel maker Tata Steel declined 5.8% and 2.2% respectively.

In the broader market, declining shares outnumbered advancing ones in the ratio of 1.5:1 on a relatively low volume of 262 million shares.

The 50-share NSE index closed 0.9% lower at 4,987.10.

Elsewhere, the FTSEurofirst 300 index of top European shares was down 0.9% by 1021 GMT.