The BSE Sensex drifted lower on Thursday, with the outlook for companies weighed down by a weaker rupee and rising costs.
Banks, which have been under pressure from rising bad loans, were among the losers as they raised interest rates steeply on non-resident Indian deposits to help capital inflows slow the slide in the rupee.
By 11:11 a.m. (0541 GMT), the main 30-share BSE index was down 0.3 percent at 15,681.5, extending losses of 1.8 percent over the previous two days. Eighteen of its components were in the red.
Trading was volatile because of the expiry of monthly derivative contracts on the National Stock Exchange.
Global cues are weak and that coupled with a weakening rupee has affected the market sentiment, said K.K. Mital, head of portfolio management at Globe Capital.
The rupee was trading down 0.7 percent on worries a worsening of Europe's economic health could trigger foreign fund withdrawals from emerging markets such as India.
Many companies that had borrowed overseas to beat high domestic rates are facing higher costs due to the rupee's slide. Risk-aversion among banks has also pushed up the cost of offshore debt.
Corporate earnings for the December quarter will be under stress as compared to the last two quarters on currency depreciation and higher interest rates, Mital said.
Energy major Reliance Industries (RELI.NS) led the losses and fell 1.5 percent.
Top private sector lender ICICI Bank, which raised deposit rates on non-resident external accounts to as high as 9.25 percent, was down 0.5 percent. Rival HDFC Bank (HDBK.NS) shed 0.2 percent.
Engineering firm Larsen and Toubro (LART.NS) fell 0.3 percent, while housing financer HDFC (HDFC.NS) was down 0.2 percent on growth concerns.
The 50-share NSE index was down 0.2 percent at 4,696.6 while there were 1.3 losers for every gainer on a weak volume of 151.92 million shares.
The MSCI's broadest index of Asia Pacific shares outside Japan fell 0.22 percent, while Japan's Nikkei was down 0.3 percent.
STOCKS ON THE MOVE
* DLF initially rose 0.7 percent after the property developer sold a unit to an affiliate of U.S. private equity firm Blackstone for $153 million.
It later erased the gains and fell 0.2 percent and brokerage Edelweiss said the sale was valued in line with DLF's guidance on asset monetisation and this was already factored in the share price.
* 3i Infotech rose 3.4 percent after its board approved a corporate debt restructuring.
TOP 3 BY VOLUMES
* IFCI (IFCI.NS) on 9.36 million shares
* Suzlon Energy (SUZL.NS) on 7.62 million shares
* Jaiprakash Associates (JAIA.NS) on 3.62 million shares