The BSE Sensex fell for a sixth consecutive session today to a two-month low, as blue chips such as ICICI Bank were hit by caution ahead of the resumption of the winter parliament session, which is seen as a key test for the government's reform credentials.
The benchmark index is now at close to levels in mid-September, when the government sparked a rally by announcing a rise in diesel prices and measures to open up the multi-brand retail and aviation sectors to foreign investment.
However, markets have faltered since the start of October amid doubts about the governments resolve to implement those reforms given political opposition to some of the measures.
Most recently, the global risk environment has worsened, especially in light of potentially protracted negotiations over the US fiscal cliff, sending the index down around two per cent for the week.
“If the political alignments don't work out, then it will be a problem for the markets especially in the background of twin deficits,” said G Chokkalingam, chief investment officer at Centrum Wealth Management.
The benchmark BSE index fell 0.88 per cent, or 162 points, to end at 18,309.37 points, marking its lowest close since September 13.
For the week, the Sensex fell two per cent, marking its biggest weekly fall since the week ended on May 11.
The broader NSE Nifty fell one per cent, or 56.95 points, to 5,574.05 points, marking its lowest close since September 20.
The Nifty also fell two per cent for the week, its biggest fall since the week ended on August 31.
Investors are also concerned about India’s ability to contain its fiscal deficit. Finance ministry officials conceded privately the country will struggle to shore up its finances after a dismal response to this week's auction of mobile phone licences and a battle to sell stakes in state companies.
These rate-sensitive stocks were also hit after Reserve Bank of India Governor Duvvuri Subbarao called inflation still quite high, even as data this week showed the wholesale price index unexpectedly easing last month.
Tata Motors shares fell 2.7 per cent, after the company reported yesterday sales at key unit Jaguar Land Rover rose less than expected. The Indian auto maker has dropped 5.6 per cent in the past three sessions.
Recent outperformers also fell. Ashok Leyland lost 2.7 per cent after rising 17.2 per cent in the last four sessions following last week's much better than expected July-September earnings.
However, broader losses were capped by gains as software services exporters rose after under-performing recently. Infosys rose 2.05 per cent on value buying, after falling 2.2 per cent for the week as of yesterday's close.
Bharti Airtel surged 3.8 per cent to end near its highest closing level since July 30. Shares have gained 9.3 per cent over the four previous session after an auction of 2G airwaves attracted less demand than targeted by the government, leading to lower prices.