Financials drag Indian shares 1% lower ahead of Fed minutes

FILE PHOTO: People watch a large screen displaying India's benchmark share index on the facade of the Bombay Stock Exchange building in Mumbai

BENGALURU (Reuters) -Indian shares fell about 1% on Wednesday, with financials and metals leading a broad-based retreat as investors fret over the rising COVID-19 cases in China and the Federal Reserve's interest-rate hiking path.

The Nifty 50 index closed 1.04% lower at 18,042.95, while the S&P BSE Sensex fell 1.04% to 60,657.45, with the two benchmark indexes logging their first session of losses in the New Year.

The minutes of the Fed's December meeting are due during U.S. business hours. Though the central bank slowed its pace of rate hike last month, it signalled that rates could stay higher for longer, fanning worries about corporate and economic growth.

Indian equities dropped due to caution ahead of the minutes, said Neeraj Dewan, director at Quantum Securities.

The metals index slid 2.11%, the most among the 13 main sectors, while the highly weighted financials index lost 0.98%.

Forty-three of the Nifty 50 constituents ended lower. HDFC Bank and Reliance Industries fell 1.77% and 1.58%, respectively, and were among the top drags.

Other top laggards were Hindalco Industries and JSW Steel, both of which fell about 4%.

Analysts said the uncertainty over demand recovery in China due to the surge in COVID-19 cases has forced metal companies to offer retailers discounts, diluting the effect of higher prices.

"While the prices across metal segments ... have risen in January, companies' margins are not seeing a significant improvement," said Mohit Lohia, research analyst at ICICI Securities.

Among individual stocks, Vedanta fell 3.52% after reporting a 9% drop in average gross operated production for the third quarter, while aluminium production also declined.

Oil and Natural Gas Corp fell 2.21%, and was among the top Nifty 50 losers, due to a number of block deals and as analysts raised worries about volume growth.

(Reporting by Bharath Rajeswaran in Bengaluru; Editing by Savio D'Souza)