Indian shares drop on profit booking; small-, mid-caps add to pain

BENGALURU, Feb 12 (Reuters) - Indian shares declined on Monday, weighed down by broad-based profit booking, while small- and mid-caps extended their slide on rising concerns over high valuations.

The NSE Nifty 50 index was down 0.76% at 21,616.05, while the S&P BSE Sensex settled 0.73% lower at 71,072.49.

Last week, the RBI doused hopes of early rate cuts and projected elevated inflation for fiscal 2025 at its policy meeting.

The broader, more-domestically focused small-caps and mid-caps declined 4% and 2.5%, respectively, extending their underperformance over the Nifty 50 for the second consecutive session.

As per experts, the risk of significant correction in small- and mid-caps is steadily growing due to extremely elevated valuations.

Eleven of the 13 major sectors declined on Monday. The energy index, the third-heaviest sector, dropped 2.41%.

Oil and Natural Gas Corporation and Tata Power lost 3.61% and 7.75% after posting lackluster quarterly results.

Financials, the heaviest of the major sectors, fell 1.41%.

Public sector banks dropped 4.43%, after adding about 6% over the last three sessions, driven by earnings and relative valuation comfort.

The PSU bank index was the second-biggest sectoral loser after the media index in terms of percentage.

In contrast, IT added 0.79% after inflation data for December added to hopes of a soft landing for the U.S. economy, a key revenue source for the sector.

Investors await India's inflation reading, due at 5:30 p.m. IST on Monday. Retail inflation likely eased to a three-month low of 5.09% in January on slowing food price rises, according to a Reuters poll.