India shares retreat from record highs

Reuters/Mumbai

Indian shares fell yesterday, retreating from fourth consecutive record highs hit earlier in the session on the back of disappointment over earnings from market heavyweights including ICICI Bank.

The results sparked doubts about the premise of a rally that has sent the broader NSE index up 7.6% so far this year, already more than its 6.8% rise in the whole of last year.

The gains this year have been premised not only on the prospect of the Bharatiya Janata Party winning the elections that would conclude by mid-May, but also on the prospect of a recovery in the domestic economy.

Inflation fears could also revive after the Indian Meteorological Department on Thursday forecast the country would see below-average monsoon rainfall in 2014, raising the possibility of drought.

Yet, heavy buying by foreign investors since the start of February has supported shares so far. Overseas funds were buyers for a fourth consecutive session on Wednesday, bringing their total this year to 298bn rupees ($4.88bn).

“We expect markets to be volatile and consolidate around the current levels till the time of election results,” said Dipen Shah, head of a private client group at Kotak Securities.

“There would be stock-specific movements based on quarterly earnings. Overall if you are looking at a longer term on a 9 month to a year basis, we advise to have a portfolio of cyclical and domestic investment oriented stocks.” The benchmark BSE index closed 0.82% lower at 22,688.07.

The index had earlier risen to an all-time high of 22,939.31, having hit a record in each of the four trading sessions this week, though it ended with a mild 0.26% gain for the week.

The broader NSE index closed 0.85% down at 6,782.75. The index gained 0.1% in the week, after earlier hitting a record at 6,869.85. ICICI Bank fell 2.24% despite posting a better-than-expected 15% rise in January-March net profit.

Dealers say the bank’s results were helped by a one-time foreign exchange gain estimated at 2.22bn rupees ($36.36mn).

Rupee snaps falling streak

The rupee posted its biggest single-day gain in a month and a half on Friday, snapping a three-session falling streak as good dollar sales by custodian banks and two large corporates helped offset greenback demand seen from oil importers.

However, for the week, the rupee fell 0.5% against the dollar, posting its worst performance since the week ended January 24, with trading influenced by falls in regional currencies on a weekly basis amid worries over tensions in Ukraine and a slide in the Chinese yuan.

The rupee has fallen for four consecutive weeks, retreating ever since it hit an eight-month high of 59.5950 in early April. Although continued strong foreign purchases of Indian shares have helped support the rupee, any changes in those flows could impact the local currency, with investors still focused on the outcome of the national elections.

The partially convertible rupee closed at 60.60/61 per dollar compared with 61.07/08 on Wednesday, rising 0.8% on day, its biggest single-day gain since March 6.

Financial markets in Mumbai were closed on Thursday on account of polling for the national elections in the state.

Trading was dominated by dollar sales from custodian banks, offsetting the strong month-end demand from importers.