Indian shares snapped a three-session winning streak and shed 0.8 percent on Wednesday as a rise in fuel prices sparked concerns over inflation, while shares in state-run oil marketing companies rallied. Weak world equities also weighed on sentiment.
Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum will raise petrol prices by about 5.6 percent this week due to surging global crude prices. Shares in these companies rose between 1.7 percent and 4.3 percent. The Reserve Bank of India (RBI) meets on Thursday to review its monetary policy in the light of still high inflation.
While it is widely expected to refrain from raising rates after six increases since March, rising energy and other commodity prices make its target of cutting headline inflation to about 5.5 percent by the end of March harder to achieve. The 30-share BSE Index dropped 0.76 percent, or 151.42 points, to 19,647.77, with 22 of its components losing ground.
"Inflation figures released yesterday showed it was easing. But the news flow today clearly points to a rise in days to come," said Sandip Sabharwal, CEO of portfolio management services at brokerage Prabhudas Lilladher. The benchmark had risen 2.9 percent in the previous three sessions and is up 12.5 percent in 2010, driven by foreign fund investment of $28.4 billion since the start of January.
Shares in India's Hero Honda Motors fell 5.4 percent to 1,621.30 rupees, its lowest close in more than 10 months, after a TV channel reported the board of its Indian partner has approved the termination of the joint venture with Honda Motors. Hero Honda shares have shed 17.8 percent so far in December on reports over Honda's pullout.
Banking shares led the decline, with the State Bank of India dropping 3.5 percent. The top lender has paid 18.5 billion rupees as advance tax for the October-December quarter compared with 17.95 billion a year ago, an income tax department source said. Leading private lenders ICICI Bank and HDFC Bank dropped 3.7 percent and 3.3 percent, respectively.
SKS Microfinance, the country's only listed microlender, dropped 3.2 percent after Andhra Pradesh state approved a legislation by ratifying an earlier ordinance that has curbed operations by the lenders to the poor. The southern state is the single biggest market for the microfinance sector.
Reliance Communications climbed 0.9 percent on news the second-largest mobile phone carrier was set to get a $1.9 billion, 10-year, loan from China Development Bank that media reports said will be used for refinancing some of its existing debt and for gear purchases. The 50-share NSE index declined 0.9 percent to 5,892.30 points.