Indian shares fell 1.1 percent on Tuesday to their lowest close in more than five weeks after a setback to the Congress party in state elections sparked worries the results would make it harder for the federal government to revive economic reforms. The Congress party, which heads the federal coalition in New Delhi, was trailing in fourth place as vote counting neared its end in the politically important northern state of Uttar Pradesh.
"One thing that is very clear is there will obviously be a policy dilemma," said Sam Mahtani, a London-based fund manager for F&C Asset Management, which owns Indian shares worth $350 million. New Delhi has been on the back foot to push policies like opening up the retail sector and to raise the limit on foreign investment in insurance firms needed to shore up economic growth.
Goldman Sachs said in a report it viewed the poll results as negative for economic reforms and the markets. The main 30-share BSE index shed 1.09 percent, or 189.58 points, to 17,173.29, its lowest close since January 30. Twenty-one of its components fell. Maruti Suzuki bucked the trend and rose 1.3 percent after Credit Suisse upgraded the top automaker to outperform from underperform, citing expectations for higher sales and margins for the fiscal year starting on April 1.
Trading was choppy with the index rising 1.9 percent at one stage and then falling as much as 1.4 percent. The benchmark is down nearly 7 percent since February 21, when it climbed to its highest close in nearly seven months. Still, the index is up 11 percent so far this year, helped by strong foreign fund inflows.
Energy conglomerate Reliance Industries Ltd led the drop, ending the day down 2.6 percent at 776.55 rupees. Top lender State Bank of India dropped 1.3 percent and No 2 ICICI Bank lost nearly 2 percent amid an institutional sell-off in heavyweight equities. The stocks are still up more than a quarter this year. The 50-share NSE index ended down 1.1 percent at 5,222.40. In the broader market, there were more than 2 losers for every gainer on strong volume of about 882 million shares.