India's share market is expected to fall as investors shy away following a steep drop in the major bourses since the start of the year, dealers said. The benchmark Mumbai stock exchange Sensex index has fallen more than 21 percent since the end of 2007.
The fall has been led by overseas investors selling around three billion dollars of equities since the start of 2008. In 2007, India's stock market rose by 47.1 percent, the largest climb in four years, driven by record foreign investment of 17.23 billion dollars.
For the week to March 7, the Sensex index fell 9.1 percent or 1,603.2 points to 15,975.52.
"The market may fall further and will find a stable level only after the inflation outlook becomes clear," said Niting Agarwal, an analyst with SSKI Securities in Mumbai. "There are concerns that food and fuel prices will pose a continuing problem."
India's inflation rate has crossed five percent to hit a 10-month high as fruit, fish and other food prices rose. Inflation is still far below its two-year high of 6.69 percent hit in January 2007.
But the new rate breached the central bank's target of close to five percent for this fiscal year ending March 31, 2008, and contradicted expectations of a fall to around 4.8 percent.
The data also came as unwelcome news for India's Congress-led government, which is worried about prices rising with the next national election just over a year away. The higher prices dampened sentiment for banks and software firms, a broker said.
"After the inflation index reported, the chance of a cut in interest rates in the near-term has reduced," said R. Balakrishnan, executive director at Centrum Broking. "Companies sensitive to interest and exchange rates fared the worst.