Rate worries push Indian shares to 10-month low

Bangalore: Indian shares fell nearly two per cent on Monday to their lowest close in 10 months, as investors fretted about the possibility of another rate increase to rein in 13-year-high inflation.

Top listed firm Reliance Industries fell 3.6 per cent to Rs2,022.20, its worst close in more than nine months, and second-largest lender ICICI Bank dropped 1.8 per cent to Rs721.35 as foreign funds led the selling, traders said.

The two shares account for about a quarter of the main index.

Sentiment was also weighed down by political uncertainty ahead of a meeting tomorrow between the ruling coalition government and its communist allies over a controversial civilian nuclear deal with the US, traders said.

The left allies, whose parliamentary support is crucial for the minority coalition, have said they would withdrew support if the government went ahead with the deal.

The main 30-share BSE index ended down 1.91 per cent, or 277.97 points, at 14,293.32, its lowest close since August 23, 2007, after having fallen as much as 2.8 per cent during trade.

Twenty-four of the benchmark's components lost ground.

"There is too much pessimism in the market and there is a real fear that interest rates will be raised sooner than later. This will have a bearing on corporate profits," said Daljit Kohli, head of research at Emkay Share and Stock Brokers.

In the broader market, losers overwhelmed gainers by five-to-one on volume of 248 million shares.

The BSE index is down about 30 per cent in 2008, making it one of the worst performing Asian markets this year.

"Investors should sit tight on cash at this point in time. Value buying at these levels will be like catching a falling knife because there is no clarity about a reversal in the trend," Kohli said.

On Saturday, the finance ministry had said it expected the monetary authority would take action to cool inflation that spiked above 11 per cent in early June.

The central bank had this month raised its key lending rate by a quarter point to eight per cent, its first increase in 14 months, to douse inflation expectations.

Dampener

Traders said the withdrawal of support by a minor ally of India's ruling alliance, blaming the government for failing to tame rising inflation, was also a dampener for the market.

Brokerage India Infoline said although there was no threat to the survival of the coalition, the government would remain under "tremendous pressure" due to rising inflation with less than a year to go for national elections.

"Amid such uncertain times, we advise investors to refrain from aggressive buying as there could be more downside in the offing," the brokerage wrote in a note to its clients.

The 50-share NSE index or Nifty fell 1.87 per cent to 4,266.40 points.