Indian shares edged lower on Friday to post a second day of losses as worries about the summer drought hit tractor maker Mahindra & Mahindra and lenders with rural exposure, but broader losses were kept in check as defensive stocks rallied. The summer drought, confirmed by the government on Thursday, threatens to make a bad situation worse for an Indian economy already crippled by a sharp slowdown in growth, persistent inflation and a politically hamstrung government.
The worries at home come during a cautious waiting period by global investors for more stimulus from the European Central Bank and the Federal Reserve, after both central banks refrained from immediate action this week. "Drought is not yet fully discounted. In the medium term, it is going to have an impact on the market," said Vijay Kedia, director at private wealth management firm at Kedia Securities.
The 30-share BSE index fell 0.15 percent to 17,197.93 points, though it gained by 2 percent for the week, led by the initial optimism that global central banks would act. The 50-share NSE index fell 0.23 percent to end at 5,215.70 points. Shares in India's state-run banks fell on Friday due to concerns a looming drought would increase defaults of farm loans, leading to higher provisioning in coming quarters.
Worries the drought would push up food inflation and delay any interest rates from the Reserve Bank of India also weighed, after the central bank kept monetary policy on hold on Tuesday. Top-ranked State Bank of India fell 0.3 percent, while Oriental Bank of Commerce fell 1.7 percent and Allahabad Bank retreated 0.64 percent. Private lender ICICI Bank fell 2 percent.
Tractor maker Mahindra & Mahindra shares fell 1.6 percent on growing worries the drought would hit rural consumption, sparking reduced sales. Shares of two-wheeler makers also fell, given concerns of a slowdown in sales during the key festival season in the second half of 2012. Hero MotoCorp fell 0.2 percent, while Bajaj Auto lost 0.9 percent.
Other consumer good stocks also fell, with cigarette maker ITC ending down 0.8 percent. However, non-consumer good defensive stock gained, reflecting the global and domestic uncertainties. Dr Reddy's Laboratories rose 1.6 percent, helped as well after US health regulators approved its application to market a generic version of AstraZeneca Plc's blood pressure drug Toprol-XL.
Power utility NTPC gained 1.7 percent, marking its third session of gains during which the stock has advanced 5.9 percent. Satyam Computer Services surged 6.3 percent after the software services exporter beat analyst estimates with a 56.4 percent rise in quarterly profit thanks to new business orders and currency effects. The company is in the process of merging with parent Tech Mahindra Ltd, which gained 5.8 percent.