Indian shares fall 1.2% on monetary policy concerns

Mumbai: Indian shares fell 1.2 per cent on Tuesday to their lowest in almost a week, led by heavyweight Reliance Industries and banks that dropped on concerns the central bank may tighten policy to fight high inflation.

Traders said weak overseas markets and high oil prices also undermined sentiment when trading resumed after a three-day weekend, while disappointing results sent drugmaker Dr Reddy's Laboratories more than two per cent down.

"Inflation and rising crude prices are a drag," Raj Bhandari, a director at Networth Stock Broking, said. "And falling Asian and European markets did not help."

Investors dumped bank shares after central bank governor Y.V. Reddy said in Singapore that India's inflation rate was totally unacceptable and the official data underestimates the actual rise.

Annual inflation was at 7.83 per cent in early May, the highest since November 2004, and economists say the actual rate may be closer to nine per cent due to sharp upward revisions in provisional readings recently.

The BSE Bank index fell nearly two per cent on concerns the central bank may again tighten policy. In April, it had raised the proportion of deposits that banks must set aside by 75 basis points to 8.25 per cent.

Largest lender State Bank of India fell 2.9 per cent to Rs1,655.45 and rival ICICI Bank ended 1.4 per cent lower at Rs927.65.

The benchmark 30-share BSE index dropped 1.17 per cent, or 204.76 points, to 17,230.18, its lowest close since May 14, with 23 of its components in the red. The index is down 15 per cent in 2008.

Shares in refiner and petrochemical maker Reliance Industries, which has the heaviest weightage on the index, fell 1.26 per cent to Rs2,602.

Dr Reddy's ended down 1.75 per cent at Rs638.35 after falling as low as Rs634 on a worse-than-expected 68 per cent drop in quarterly earnings.

In the boarder market, gainers beat losers 1,424 to 1,293 on volume of 327 million shares.

The 50-share NSE index fell 1.02 per cent to 5,104.95.

State-run oil marketing firms Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp fell between 1.3 per cent and 2.8 per cent on concerns of high oil prices hurting profitability.

But oil and gas explorer Cairn India, a unit of UK's Cairn Energy, jumped 9.4 per cent to Rs327.85, its highest close.

Technology

Tech Mahindra ended 5.2 per cent down at Rs906.40 after the software services firm posted a loss of Rs2.21 billion in the March quarter.

IL&FS Investmart fell 3.5 per cent to Rs191.95 after investors were disappointed with an open offer price of Rs200 set by HSBC, which had said on Saturday it would buy 73.21 per cent of the firm and make an open offer for a further 20 per cent.

Suzlon Energy Ltd rose 3.4 per cent to Rs318.40 after the company said it may sell a part of its stake in German wind turbine maker REpower.