December 31, 2012 / 11:40 AM / 5 years ago

Indian shares post best yearly gain in three

* BSE 0.09 pct lower; NSE ends 0.06 pct down
    * Indexes post best yearly gains in three years
    * Fiscal deficit to remain a challenge in 2013

    By Manoj Dharra
    MUMBAI, Dec 31 (Reuters) - Indian shares edged lower on
Monday due to caution over the U.S. "fiscal cliff" talks, but
ended 2012 with their best gain in three years as strong foreign
inflows and the government's fiscal and economic reforms
outweighed worries about the domestic economy. 
    Foreign investors have pumped in over $24.2 billion this
year, marking the biggest inflows since a record $29.36 billion
in 2010, on the back of cheaper valuations and government
measures to further open up the retail and aviation sector.
    Indian stocks could gain further next year due to expected
interest rate cuts from the Reserve Bank of India and on
improved earnings, while investors are also gearing up for a
potential revival in initial public offerings.
    However, challenges remain, including over-leveraged banking
and corporate sectors as well as the prospect of a sovereign
ratings downgrade should the government fail to get its finances
under control. 
    "Most important challenge is of fiscal deficit which will
remain in 2013," said Vaibhav Sanghavi, director at Ambit
    Fiscal deficit in combination with current account deficit
will impact the exchange rate going forward, Sanghavi added.    
    The benchmark BSE index fell 0.09 percent, or 18.13
points, to end at 19,426.71 points, but surged 25.7 percent for
the year to mark its biggest gain since 2009.
    The broader NSE index ended down 0.06 percent, or
3.25 points at 5905.10, but was up 27.70 percent in 2012. 
    Gains could continue next month amid expectations the
central bank will cut interest rates for the first time since
April, benefitting sectors such as banks and property that have
already outperformed this year. [For best, worst performers,
    The government is also expected to continue its drive to
sell stakes in companies, including state-run Oil India Ltd
 and NTPC Ltd, while companies such as BSE
Ltd are planning to list.
    Although earnings are expected to rebound on the back of an
improving economy, some sectors are still seen weak, including
India's $100 billion technology sector, which is being hit by
weakening global demand. 
    Concerns that U.S. lawmakers may fail to clinch a solution
to the U.S. "fiscal cliff" would weigh on domestic markets.
    Technology stocks were among the leading decliners, with HCL
Technologies falling 1.21 percent while Tata
Consultancy Services fell 0.9 percent.
    Among other decliners, profit-booking hit blue chip ITC
 sending the cigarette maker down 0.9 percent on Monday,
 after gaining 43.77 percent this year as of Friday's close.
    ICICI Bank, the best perfroming blue-chip bank, 
fell 0.3 percent. Its shares have surged 66.73 percent this year
as of Friday's close.
    However, among gainers, Tata Motors gained 0.84
percent ahead of monthly sales data due on Tuesday amid
expectations of an improved performance.
    Wipro Ltd gained 0.6 percent after shareholders
approved its demerger plan following a meeting on Friday.
    Oil and Natural Gas Corp ended up 0.83 percent,
extending Friday's 2.6 percent gain on hopes of fuel price
    Bharti Infratel Ltd rose 1.1 percent after the
FTSE said on Friday it would include the mobile tower company in
its large cap index starting on Jan. 7, with an investability
weighting of 9 percent. 

 (Editing by Sunil Nair)

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