Reuters/Mumbai

India’s NSE index fell for a second consecutive session as investors continued to book profits in recent outperformers such as State Bank of India while they wait for actual policies from Prime Minister Narendra Modi and his new cabinet.

Arun Jaitley, who was named as India’s new finance minister, committed himself yesterday to repairing public finances and restoring investor confidence. The close party colleague of Modi will also share the defence and corporate affairs portfolios, although only temporarily.

The new government will need to meet high investor expectations, as prospects of a victory by the Bharatiya Janata Party had sent the NSE index up by 25.8% to record highs since Modi was named as the prime ministerial candidate for the opposition party in mid-September.

Overseas investors have been especially strong buyers of the rally, but sold a net $14.3mn on Monday, their second session of sales in three, according to provisional exchange data.

“Market is getting into some sort of correction mode now after the election rally. Now the optimism needs to be matched with the fundamentals. I think market will start counting for the next events such as (macro) policy announcements and RBI policy,” said Deven Choksey, managing director, KR Choksey Securities. The broader NSE index closed 0.56% lower at 7,318 points, marking only its third daily fall this month.

The benchmark BSE index fell 0.68% at 24,549.51 points. Shares in State Bank of India fell 2.7%, adding to their 1.9% fall on Monday.

Lenders, especially public sector ones, have been big beneficiaries of the recent rally given expectations they are primed to benefit from a recovering domestic economy. SBI has gained 48.85% so far this year. Other outperformers also fell. Reliance Industries closed 1.25% lower and Bharat Heavy Electricals ended down 5.2%.

Mid-caps, which recently posted strong gains, also slumped. Unitech, which gained 77% in May, fell 6.6%.

Shares in Gail India fell 7.5% after its earnings missed some analysts’ expectations. GAIL’s January-March net profit rose by 57% to Rs9.72bn ($165.36mn), and Jefferies said factors including a weak demand environment and subsidy burdens impacted GAIL’s earnings, according to a note to clients yesterday.

Shares of sugar refiners slumped as sugar futures fell to their lowest in 10 weeks on sluggish demand from bulk consumers ahead of the monsoon season.

However, investors also picked up shares that under-performed the rally, such as exporters that were seen as vulnerable to a stronger rupee.

Shares in Infosys gained 1.27%, but were still down 1.5% this month, while Dr Reddy’s Laboratories gained 0.5%, but was down 14.6% so far this month.

Rupee sees worst fall in over two months

The Indian rupee posted its biggest single-day fall in more than two months yesterday, dropping for a third straight session, weighed down by continued profit-taking in domestic shares and month-end dollar demand from importers.

After Narendra Modi was sworn in as India’s prime minister late on Monday, investors are now focusing on his policies, which will help determine whether a recent rally in the rupee and in shares is justified.

New finance minister Arun Jaitley will be especially important as investors await a new budget, expected by early July, that will need to reassure markets that India can contain its fiscal deficit.

The new government will also need to decide on steps taken by the previous government to curb imports, which helped narrow the current account deficit to $1.2bn in the March quarter, according to data late on Monday.

India has been able to narrow its current account deficit thanks to hefty foreign inflows, including net purchases of $5bn worth of stocks and debt in the month so far, taking total inflows this year to more than $14bn.

“Foreign fund flows have been strong and the continuation of those will be key for the rupee,” said Uday Bhatt, a foreign exchange dealer with UCO Bank.

The partially convertible rupee closed at 59.04/05 per dollar compared to 58.71/72 on Monday. It moved in a wide 58.79 to 59.11 band during the session.

The unit fell 0.56% on the day, its biggest single-day fall since March 20, when the unit had dropped 0.6%. The rupee fell as India’s NSE index fell for a second consecutive session as investors continued to book profits in recent outperformers such as State Bank of India.

Investors will also focus on gross domestic product data for the March quarter, due to be announced on Friday, while the Reserve Bank of India is set to review policy on June 3.

In the offshore non-deliverable forwards, the one-month contract was at 59.23 while the three-month was at 59.82.

India’s current-account deficit narrowed to $1.2 billion in the three months through March from $4.2 billion in the previous quarter.