India's main index fell more than 1 percent to a two-week low on Friday, as technology stocks dropped after bellwether Infosys kick started the domestic corporate earnings season with a disappointing revenue outlook. The forecast from India's No 2 software services exporter sparked worries about the country's $100 billion outsourcing sector, as well as about the broader outlook for corporate profits.
A fall in European shares on renewed concerns about rising borrowing costs in Spain accelerated the domestic share falls during afternoon trade, making for a volatile session. Caution is likely to prevail early next week, given inflation data is due out on Monday, while the Reserve Bank of India meets for what's seen as a critical policy meeting on Tuesday.
"Today's selling was a mix of Infosys results and fresh worries in Europe," said Sandeep J. Shah, CEO of investment advisory firm Sampriti Capital, adding that markets would now focus on the RBI meeting. The 30-share Sensex fell 1.37 percent to close at 17,094.51 points, its lowest close since March 29. The broader Nifty closed 1.32 percent lower at 5,207.45 points.
Shares in Infosys dropped 12.7 percent, after earlier falling as much as 13.1 percent to its lowest since late September. The decline came after Infosys forecast full-year dollar revenue at 8-10 percent, compared with market expectations for a rise of 10-15 percent. The weak outlook dragged down domestic rivals, sending sector leader Tata Consultancy Services down 5.6 percent and Wipro down 4.5 percent.
The steep falls in the IT sector soured overall sentiment, leading to profit-taking among recently outperforming sectors. Banks reversed earlier gains, with a sub-index losing 0.9 percent to post its first fall in four sessions. The RBI is widely expected to cut on Tuesday the repo rate by 25 basis points for the first time since April 2009, but could keep the cash reserve ratio steady after slashing it by 125 bps this year.
Among banks, State Bank of India lost 0.7 percent, while ICICI Bank fell 1.6 percent. However, among gainers, Indian cement producers rose after Citigroup upgraded Ambuja Cements, ACC and UltraTech Cement to "buy" from "sell," citing rising demand, among other factors. Shares of Indian airline companies extended a recent rally on mounting expectations their foreign peers will soon be allowed to buy stakes in them.