By Sumeet Chatterjee
MUMBAI (Reuters) - The BSE Sensex erased early gains of more than 1 percent and snapped a two-day rise on Tuesday, as investors turned cautious ahead of quarterly earnings parade and the release of industrial production data.
Telecoms stocks rallied after a new draft policy unveiled by the government was seen broadly positive for the once-booming sector that has struggled in recent years due to ferocious competition and a massive graft scandal.
The main 30-share BSE index ended down 0.13 percent at 16,536.47 points, after having risen as much as 1.3 percent early. Sixteen of the index components ended in positive territory.
"The market is a little cautious ahead of the start of the results season. The overall sentiment is not very positive, so investors also booked some profits after last two days' gains," said Kaushik Dani, a fund manager with Peerless Mutual Fund.
Infosys led the losses, shedding 3.3 percent to 2,504.55 rupees, on concerns about its earnings outlook on a slowing U.S. economy and the Europe debt crisis. The No. 2 software exporter kicks off the earnings season on Wednesday.
The export-driven company is expected to report a near 9 percent rise in net profit, and investors will be watching its guidance.
Bigger rival Tata Consultancy Services and No. 3 Wipro dropped 2.2 percent and 2.1 percent respectively.
Market confidence was also dented by a fall in European shares with investors focusing on Slovakia's parliamentary vote to ratify an expansion of the euro zone's rescue fund.
Leading mobile operator Bharti Airtel rose 3.2 percent to 375 rupees, No. 2 Reliance Communications ended 0.1 percent higher and fourth-ranked Idea Cellular climbed 3.5 percent.
The draft policy released on Monday proposes to let cellular carriers share, pool and trade radio airwaves and allow for consolidation in the crowded 15-player industry.
It was silent on details for future M&A rules and on key issues such as pricing of second-generation spectrum, a proposed one-time levy on mobile firms for additional spectrum they already hold and proposed re-farming of spectrum at the time of licence renewal.
"There are lots of questions which remain unanswered. But overall this policy seems to give a positive signal to investors," said R.K. Gupta, managing director at Taurus Asset Management in New Delhi.
"They are talking about consolidation and an exit policy for operators, which are good moves. If actually some of the new players exit that will increase volumes for the big ones."
Lenders were mixed ahead of industrial output data, which would provide cues on the RBI’s stance at its policy meeting on Oct. 25. The data is due at 11 a.m. (0530 GMT) on Wednesday.
Industrial output probably grew 5.0 percent in August from a year earlier, on a favourable statistical base effect, despite successive interest rate rises slackening the pace of growth, a Reuters poll showed.
Output growth had slumped to 3.3 percent in July, its weakest annual pace in nearly two years.
ICICI Bank fell 1.2 percent, while State Bank of India and HDFC Bank rose 0.5 percent and 0.6 percent respectively.
Leading car maker Maruti Suzuki edged 0.2 percent higher at close after trading in negative territory through most of the session on labour unrest at one of its plants in northern India that has badly hit production of cars and is expected to hurt profitability.
Striking employees have seized control of a factory hit by weeks of labour unrest, the company said on Monday, as a stand-off that has cost the firm over $150 million descended into violence.
The 50-share NSE index lost 0.1 percent to 4,974.35 points.
In the broader market, gainers were ahead of losers in the ratio of 1.4:1 on relatively heavy volume of 634.9 million shares.
European shares fell ahead of the parliamentary vote in Slovakia, which is the last of the 17-member bloc yet to vote on a deal agreed by the region's leaders in July to boost the size and powers of the European Financial Stability Facility.
All 17 euro zone states must ratify the European Financial Stability Facility expansion for it to go active. The vote by Slovakia's parliament is finely balanced and a failure to pass the vote would rattle markets.
STOCKS THAT MOVED
* Private-sector lender Dhanlaxmi Bank closed down 9.65 percent at 64.60 rupees. The stock had slumped 24 percent at one stage after an industry union alleged irregularities in its accounts, and came off lows after the bank denied the charges.
* Drugmaker Lupin rose 2.5 percent to 468.75 rupees after the company launched the generic version of oral contraceptive Femcon Fe in the United States.
MAIN TOP 3 BY VOLUME
* Dhanlaxmi Bank on 36.7 million shares
* Tata Motors on 22.8 million shares
* Unitech on 16.8 million shares
(Additional Reporting by Prashant Mehra; Editing by Editing by Ranjit Gangadharan)