Mumbai: Shares lost confidence and tumbled after an early rise on Tuesday, losing nearly 2 per cent on fears that authorities would raise interest rates to try to curb surging inflation even as economic growth was slowing.
Top private steel maker Tata Steel Ltd fell 1.8 percent to Rs 680.95, and leading private lender ICICI Bank Ltd fell 0.2 percent to Rs 768.55.
"The anti-inflationary rhetoric of the government has hurt commodity stocks and the banks," said V.K. Sharma, head of research at Anagram Stock Broking Ltd.
"Lets face it, interest rates are going upwards and nowhere else. A rate hike is in the offing and import duties on many commodities may be slashed further," he said.
At 1116 hrs, IST, the benchmark BSE 30-share index was down 0.2 percent or 30.99 points at 15,613.45, with 14 components in the red. It later extended losses to 1.9 percent.
The index, which rose as much as 1.2 percent in early deals, had dropped 4.44 percent on Monday and is down more than 23 percent so far this year. In the broader market 1,471 gainers beat 737 losers in a low volume of more than 68 million shares.
The central bank said on Monday it was ready to act against unacceptably high inflation, which hit a 14-month peak of 6.7 percent in mid-March, signalling a likely tightening of cash conditions. The government scrapped import duties on crude edible oil and banned exports of non-basmati rice amid a raft of measures to try to contain prices.
On Tuesday, a survery showed manufacturing activity grew at its slowest pace in eight months in March, slipping further from its peak in December as consumer demand softened due to high interest rates. Shares in HDFC Bank Ltd fell 1.13 percent to 1,305 rupees.
The sector index was down more than 1 percent. Top infrastructure play Larsen & Toubro Ltd was down 1.8 percent to 2,969 rupees and state-run Bharat Heavy Electricals Ltd fell 4.5 percent to 1,965.10 rupees.
The 50-share NSE index fell 0.36 percent to 4,717.65. Elsewhere in the region, Karachi's 100-Share index was up 0.22 percent at 15,159.39 points, while Colombo's All-Share index rose 2.7 percent to 2,619.01.
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