10:00AM New York, 7:30PM Mumbai – Stocks in India fell on the political uncertainties and elevated inflation. Sensex drops 34% in the first half.

Sensex Falls 38%

India shares extended losses for the second successive on Monday as high inflation, elevated interest rates, record crude prices and political concerns continued to weigh on the investor sentiment.

Investors are on the edge as the division in the ruling coalition deepens on the nuclear deal with India. The ruling coalition, United Progressive Alliance led by Congress Party may be dissolved. Congress leader Sonia Gandhi has suggested signing a deal with the U.S. ignoring opposition by the other coalition members.

The Left parties on Sunday renewed their threat to withdraw support from the ruling coalition if Prime Minister Manmohan Singh forged ahead with the nuclear deal.

Market sentiment

The 30-share BSE Sensex fell 2.5% or 340.62 to 13,461.60. On the National Stock Exchange, CNX Nifty declined 2.3% or 96.1 to 4,040.55. The Sensex is now down 38% from its peak in January and may decline further if the elevated inflation erodes profits at large corporation.

Sensex index has fallen 38% from its peak in January and declined 34% in the first half of this year, the worst decline in the first half since 1979.

Of the BSE traded shares, 542 shares gained, 2,107 shares declined and 43 shares remained unchanged. Among the Sensex index shares, 21 stocks declined and 9 stocks gained.

Trading statistics

Daily turnover on the BSE amounted to 4,439 crore rupees and trading on the NSE reached 11,450 crore rupees.

Reliance companies led the most active stocks list. Reliance Industries was the most active stock on the BSE with the trading volume of 379.85 crore rupees followed by Reliance Petroleum, Reliance Capital, Niraj Cement and Reliance Communications.

Reliance Petroleum clocked the highest volume of 1.51 crore shares on BSE followed by Reliance Natural Resources, Chambal Fertilisers, Chemicals, IFCI and Ispat Industries.

International investors Sell

International investors sold stocks worth $6.13 billion in the first half of this year compared to a net purchase of $17.2 billion in the last year according to the latest data from the Securities and Exchange Board of India. International investors have been paying attention to rising inflation, weak political sentiment and likely decline in corporate profitability.

Growth Slow Down

Dresdner Bank said that elevated inflation and rising interest rates are expected to take a toll on the Indian economy and growth may slow down to 7.5% from 9% in latest fiscal year ended in March 2008. The economy continues to lose steam as manufacturing sector growth in the first four months has declined rapidly.

During the UPA government first four years of rule, the economy has grown at 8.9% rate and in the latest fiscal year expanded at 9%, slower than the previous year rate of 9.6%. However, industrial growth had slipped to 3% in March, but recovered to 7% in April.

Inflation has jumped from the modest 3% at the end of the year 2007 has soared to 11%, the highest level in 13 years.

Gainers and losers