Indian shares fell on Tuesday to close at their lowest level in about eight months on worries China’s potential inclusion in the MSCI Emerging Market index may tactically hurt portfolio flows, while exporters declined on the rupee’s strength.

US index provider MSCI will announce later in the day whether it would push ahead with plans to include the so-called China ‘A’ shares in its Emerging Markets Index, a decision that MSCI says would draw $400 billion to China stocks over time.

The 30-share BSE index Sensex ended lower by 41.84 points or 0.16 per cent at 26,481.25 and the 50-share NSE index Nifty fell 21.75 points or 0.27 per cent to 8,022.40.

Among BSE sectoral indices, realty index fell the most by 1.31 per cent, followed by healthcare 1.2 per cent, TECk 0.71 per cent and IT 0.63 per cent. On the other hand, metal index remained investors' favourite and was up 1.06 per cent, followed by consumer durables 0.73 per cent, power 0.2 per cent and infrastructure 0.17 per cent.

Top five Sensex gainers were VEDL (+3.11%), Hindalco (+1.57%), ICICI Bank (+1.36%), GAIL (+1.3%) and Tata Motors (+1.06%), while the major losers were Cipla (-3.35%), Dr Reddy's (-2.34%), Sun Pharma (-2.05%), Wipro (-1.76%) and Bajaj Auto (-1.6%).

Continued selling by foreign investors amid worries over slow reforms, retrospective taxes and more recently competition for portfolio flows from China after potential inclusion of its ‘A’ shares in the MSCI emerging market index dampened the domestic sentiment.

Analysts and fund managers however believe Indian equities have already priced in a higher weight for China in the MSCI index after falling nearly 12 per cent from their record highs hit in March.

“MSCI decision might be a tactical change for markets but not for India's domestic economy,’’ said G. Chokkalingam, founder of Equinomics, a Mumbai-based research and fund advisory firm.

Foreign institutional investors have sold in four of the last five trading sessions, withdrawing about $316 million from Indian cash equities, regulatory and stock exchange data showed.

Overseas funds withdrew a net Rs 5,700 crore ($889.9 million) from shares last month, when markets were gripped by worries about a potential retrospective minimum alternate tax (MAT).

Lower global stocks on speculation the US Federal Reserve could raise interest rates sooner than many expect also weighed on the sentiment.

Global markets

European shares fell on Tuesday to extend a recent losing streak, tracking a drop in US stocks, with HSBC slightly lower after announcing a drastic restructuring plan.

The pan-European FTSEurofirst 300 index was down 0.4 per cent at 1,522.18 points by 0706 GMT, tracking a fall on Wall Street as investors speculated that the Federal Reserve may raise rates as soon as September.

Asian shares sank in a sea of red on Tuesday as speculation of US rate rise as early as September hit emerging markets generally, while failing to give a lasting lift to the dollar.

A steady start soon gave way to broad selling with MSCI’s index of Asia-Pacific shares outside Japan shedding 0.8 per cent to a fresh 10-week low.

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