Mumbai, October 07: The BSE Sensex erased early gains and fell 0.9 percent on Wednesday as outsourcers slid on worries a surging rupee would hit the profit margins of the export-driven sector.
The rupee leapt to its highest in more than a year against the dollar mainly on the back of large equity inflows over the past one month, taking its gains to 12 percent from a record low in early March.
The jump could squeeze the margins of top outsourcers such as Tata Consultancy Services, Infosys Technologies and Wipro that get more than half their revenue in dollars, traders said.
Metals stocks such as Sterlite Industries and Hindalco Industries rose in line with resources stocks in the region that were boosted by the dollar’s weakness.
The 30-share main index closed down 151.88 points at 16,806.66, with two-thirds of its stocks in the red. It had started higher and initially rose nearly 1 percent, mirroring the gains in Asian markets.
“The mood is turning cautious, which is rational considering the rise we have seen this year,” said Amitabh Chakraborty, president of equities at Religare Capital.
“Earnings are expected to be good, but valuations are already looking stretched,” he said.
The benchmark index has risen more than 74 percent this year, boosted by foreign portfolio inflows of $12.7 billion.
In the broader market, gainers marginally beat losers on relatively heavy volume of 589 million shares.
“Intra-day volume is going up, as traders do not like to keep positions open,” Chakraborty said.
Traders said they expected the market to move cautiously until quarterly earnings, which would be kicked off by software services bellwether Infosys on Friday, come through.
Tata Consultancy, Infosys and Wipro are expected to report quarterly profit rose 5-26 percent from a year ago, but the rupee’s rise could dent margins in the coming quarters.
Infosys closed 2.55 percent lower at 2,251.85 rupees, while larger rival Tata Consultancy shed 3.3 percent to 592.95 rupees and Wipro fell 4.3 percent to 573.10 rupees.
Banking stocks dropped after a higher start as traders took profits after the sector index climbed nearly 18 percent since the start of September.
State Bank of India shed 2.7 percent to 2,101.35 rupees while private sector ICICI Bank closed 2.2 percent lower at 917.30 rupees.
Non-ferrous metals maker Sterlite firmed 5.5 percent while leading aluminium producer Hindalco added 1.6 percent.
Tata Steel, the world’s eighth-largest steel maker, climbed 1.2 percent to 516.70 rupees.
The 50-share NSE index closed 0.83 percent lower at 4,985.75.
STOCKS THAT MOVED
* Jewellery maker Gitanjali Gems rose as much as 11.8 percent to 134.50 rupees after it said late on Tuesday it bought Alliance Jewellers, which makes gold and diamond studded jewellery.
The stock closed 6.8 percent higher at 128.55 rupees.
* Godrej Industries Ltd rose 6.4 percent to 200.60 rupees after the diversified firm said it would jointly develop property in Mumbai with group firms Godrej Properties and Godrej & Boyce Mfg Co Ltd.
MAIN TOP 3 BY VOLUME
* Ispat Industries on 19.8 million shares
* Spicejet on 17.8 million shares
* Kingfisher Airlines on 11.7 million shares
—Agencies