By Abhishek Vishnoi
Mumbai (Reuters) - The BSE Sensex and Nifty fell on Wednesday, closing at their lowest since January, as the rupee hit a new record low below the psychologically key 56 level, while global stocks continued to be routed because of fears about the euro zone.
Telecom stocks such as Bharti Airtel were among the big decliners ahead of Thursday's meeting by the telecom ministry to decide on a controversial proposal from a regulatory body to raise spectrum prices in an auction of mobile airwaves.
Traders expect more weakness ahead for Indian stocks, given the rupee has dropped more than 13 percent since its 2012 peak in February, underscoring an urgent need of major reforms to get investors believing again in the India story.
The rupee dropped to a record low of 56.225 to the dollar amid renewed global risk aversion. Indian stocks and the rupee tend to track each other's directions.
"There is lot of uncertainty in the market partly because of European crises and partly because of inaction from of government and Reserve Bank of India," said R.K Gupta, managing director at Taurus Mutual Fund.
The BSE Sensex ended down 0.5 percent at 15,948.10 points, closing at its lowest since January 9 and adding to the 1 percent loss it had clocked in previous session.
The broader 50-share Nifty fell 0.51 percent to 4,835.65 points, its lowest since January 12.
Gupta added market valuations are turning attractive and said he expected a recovery should the government address some of the investor concerns about its fiscal challenges, including about its spending.
Foreign flows to equities were slightly positive in May as of Tuesday's close, but overseas investors were net sellers of around 11 billion rupees worth in April.
Telecom stocks were among the big decliners ahead of the key ruling on Thursday.
The 2G airwave auction must be completed by August after the Supreme Court of India ordered the cancellation of all cellular permits awarded in a scandal-tainted 2008 sale process.
Idea Cellular fell 3.7 percent, while Reliance Communications ended 1.8 percent lower.
Goldman Sachs downgraded Idea Cellular to "neutral" from "buy" and Reliance Communications to "sell" from "neutral", citing the regulatory overhang.
Bharti Airtel dropped 4.4 percent, closing at its lowest since July 2010, hit as well by fears about the impact from a slumping rupee on its overseas debt exposure.
Among other decliners, Reliance Industries fell 0.6 percent after exploration partner Niko Resources said they have abandoned the D4 oil and gas block off India's east coast, underlining the production problems in the region.
Auto shares fell on speculation the government could raise fuel prices, adding to worries about a sector facing uncertainty about future sales and rising raw material costs because of the falling rupee.
Tata Motors 1.4 percent, while two wheeler Bajaj Auto ended 1.3 percent lower.
Tata Power shares dropped 2 percent, a day after the company posted a consolidated net loss of 6.3 billion rupees.
(Additional reporting by Manoj Dharra; Editing by Rafael Nam)