Indian shares fall 2.8% as fuel costs increase

New Delhi: Indian shares fell 2.8 per cent on Wednesday to their lowest close in two months, after a rise in state-set fuel prices triggered concerns of accelerated inflation and a squeeze on corporate earnings growth.

India raised petrol and diesel prices by about 10 per cent yesterday, the biggest increase in recent times, to curb losses at its state-run refiners.

The increase may lift annual inflation to 13-year highs above nine per cent in early June, a Reuters poll showed, crimping consumer spend and delaying vehicle purchases.

Shyam Bhatt, fund manager at Principal PNB Asset Management, said the fuel price rise would hurt demand and add to the inflation, which is already a concern. "The growth this year is expected to be lower than last year," he said. "It is also getting factored into the kind of corrections you have been seeing in the market."

The 30-share BSE index fell 2.81 per cent, or 447.77 points, to 15,514.79. It was index's biggest single-day percentage fall in two months and its lowest close since April 4. All but one component lost ground.

In the broader market, losers outnumbered gainers by nearly three-to-one on volume of 313.5 million shares.

The fuel price rise, which came after days of political wrangling, irked the government's key allies, the left parties, who responded with a call for a week of nationwide protests and strikes, raising worries over political stability.

Petrochemical and refining giant Reliance Industries Ltd, which has the heaviest weight in the index, led the losers falling 4.1 per cent to 2,307.20, its lowest close since end-March. "The concern is of a slowdown," said Deven Choksey, CEO of brokerage K.R. Choksey. "All commodities [firms] will be affected though they would try to pass on the costs to the end user."

Auto shares fell as higher fuel prices were expected to dull demand. Top motorbike maker Hero Honda Motors Ltd fell 2.7 per cent to Rs776.75 while leading truckmaker Tata Motors lost 4.9 per cent to Rs542.50, its lowest close in more than two years.

Maruti Suzuki, the top carmaker, ended down 5.1 per cent at Rs746.55, while utility vehicle maker Mahindra & Mahindra Ltd shed 3.9 per cent to Rs568.

"Initially, car sales might see a dip," said a spokes-man for Maruti. "But eventually, we expect to be back on track as customers will look for more fuel-efficient options."

Shares in software services companies fell after a report Lehman Brothers may have to raise more capital compounded worries about the financial sector, which accounts for a major part of Indian services firms' revenue.

Bellwether Infosys Technologies lost 2.7 per cent to Rs1,870.10 and top software maker Tata Consultancy fell 2.1 per cent to Rs958.10.

Oil refiners, which are expected to gain from the government decision, reversed early gains to end lower as investors headed for the exit.

Indian Oil Corp fell 3.6 per cent, Hindustan Petro-leum lost 2.9 per cent and Bharat Petroleum dived 7.8 per cent.

currency

rupee slips

The Indian rupee fell yesterday as the stock market dropped 2.8 per cent to a two-month closing low, heightening worries foreigners would continue to withdraw funds, with broad gains in the US dollar also weighing.

The partially convertible rupee ended at 42.77/78 per dollar, 0.4 per cent weaker than Tuesday's close of 42.60/61 and down nearly eight per cent this year.

"The rupee is down tracking the stock market mainly," said L. Subramanian, chief dealer at ICICI Bank.

- Reuters