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India shares extend losses ahead of monetary policy decision

Larsen & Toubro, Tata Consultancy pace declines in Sensex

MUMBAI (NewsRise) -- Indian shares extended losses on Tuesday, a day before the nation's rate-setting panel decides whether to go for the first interest rate increase in more than four years.

The BSE Sensex dropped 0.3% to 34,903.21 and the Nifty 50 Index declined 0.3% to 10,593.15. Both the indexes had declined 0.6% in the previous session. Engineering and construction conglomerate Larsen & Toubro dropped 1.9% and software exporter Tata Consultancy Services declined 1.3%, the biggest contributors to Tuesday's losses on the Sensex. Indiabulls Housing Finance and Coal India paced declines on the Nifty 50 in percentage terms, falling at least 2.4% each.

On Wednesday, during market hours, India's Monetary Policy Committee will decide whether rising core inflation and upward pressure on overall prices warrant a quarter percentage point increase in the nation's benchmark interest rate. While there is near unanimity among economists that the MPC is likely to adopt a more hawkish tone amid a worsening inflation outlook, there is disagreement over whether it will raise rates or wait until its next meeting in August.

"Whether the rate increase happens tomorrow or in August is not a major issue for Indian equities from the medium-term point of view," said Akash Jain, vice president of research at Mumbai-based Ajcon Global. "The direction of crude oil prices and the rupee will be major drivers for Indian equities over the coming months."

The Indian rupee is among the worst performing regional currencies this year, weighed by rising crude prices. With India importing more than three-fourth of its oil requirement, higher crude prices affect real incomes and spending, hurting economic outlook.

Small-cap and mid-cap stocks underperformed the benchmark indexes, which Jain said was on account of the introduction of extra surveillance measures by India's securities regulator. CNBC TV reported on Tuesday that the Securities and Exchange Board of India imposed certain additional surveillance measures (ASM) on shares.

The S&P BSE SmallCap Index dropped 2.4% on Tuesday while the MidCap index declined 1.2%.

Biocon shares closed 7.1% lower. Shares of the pharmaceutical company had climbed to a record earlier in the day after the U.S. heath regulator approved its partner's bio-similar cancer drug.

IndusInd Bank added 0.2% and Bharat Financial advanced 1.3% after the BSE and NSE approved their proposed merger.

Mobile phone operators declined. Bharti Airtel slipped 2.2% and Idea Cellular slumped 10%. Late Monday, Idea said it had received approval from the country's telecom regulator for increasing foreign direct investment limit in the company to 100%. It said that the approval marked a major milestone in the merger of the company with Vodafone India.

--Nimesh Vora

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