Bloomberg News

India’s Sensex Retreats Most in 3 Weeks on Concern Over Rates

June 15, 2011

June 15 (Bloomberg) -- Indian stocks dropped the most in three weeks as Goldman Sachs Group Inc. warned inflation will remain a “key headwind” for the economy ahead of a central bank interest-rate decision tomorrow.

State Bank of India, the nation’s biggest lender, declined 2.1 percent. Maruti Suzuki India Ltd., the largest carmaker, fell 1 percent as a strike at one of its factories entered a 10th working day. The Reserve Bank of India will boost rates a further 75 basis points by the end of the year, including a 25 basis-point increase tomorrow, Goldman Sachs analysts Vishal Vaibhaw and Tushar Poddar wrote in a report dated yesterday.

The Bombay Stock Exchange Sensitive Index, or Sensex, fell 176.42 points, or 1 percent, to 18,132.24, its lowest since May 26, at the 3:30 p.m. close in Mumbai. The S&P CNX Nifty Index on the National Stock Exchange lost 1 percent to 5,447.50. Its June futures settled at 5,452.65. The BSE 200 Index lost 0.9 percent to 2,259.94.

“The main reason why people are not investing is because there’s no clarity where things will move in the next three to six months,” said Shishir Bajpai, vice president at IIFL Wealth Management Ltd., which has $1.8 billion in assets under management and advisory. “Yesterday’s inflation numbers were bad. The Reserve Bank has clearly said it doesn’t expect inflation to come down substantially before September.”

A government report yesterday showed that the wholesale- price index rose 9.06 percent in May from a year earlier, after an 8.66 percent jump in April. The central bank has raised rates nine times since March 2010 to cool inflation as food and fuel prices surged.

‘Anti-Inflationary Stance’

“We think the RBI will continue with its ‘anti- inflationary’ stance in the remainder of 2011,” the Goldman Sachs analysts wrote. “The May WPI numbers suggest that pressure on headline inflation remains high.”

State Bank slid 2.1 percent, the most since May 23, to 2,182.5 rupees. Nearest rival ICICI Bank Ltd. shed 2.3 percent to 1,031.15 rupees, its first decline in three days.

Maruti decreased 1 percent to 1,210 rupees and its June futures settled at 1,206.20. The stoppage at the company’s Manesar factory, which builds as many as 1,200 cars daily, is costing the Indian unit of Suzuki Motor Corp. $9 million a day, Chairman R.C. Bhargava said on June 8.

Reserve Bank Governor Duvvuri Subbarao said last month he was willing to risk a slowdown in growth to curb price pressures, which undermine spending power in a nation where the World Bank estimates three-quarters of people live on less than $2 a day.

Worst Performer

“Inflation is a big worry and policy makers’ objective would be to fight price gains rather than worry about growth,” Samiran Chakraborty, Mumbai-based chief economist at Standard Chartered Plc, said yesterday.

The Sensex, Asia’s worst performer this year, has lost 12 percent amid concern higher borrowing costs will crimp earnings. Stocks on the measure are valued at an average 14.7 times estimated profit, down from 21.5 times in March 2010, last year’s high. The MSCI Emerging Markets Index trades at 10.9 times earnings.

The Reserve Bank of India will increase its repurchase rate by a quarter of a percentage point to 7.5 percent tomorrow, according to 18 of 20 economists surveyed by Bloomberg, with two predicting no change. India’s 10-year bonds declined for a third day, pushing yields to the highest level this month.

Jaiprakash Associates Ltd., a builder of dams, roads and bridges, lost 2 percent to 82.6 rupees on speculation higher borrowing costs will hurt constructors and developers. DLF Ltd., the biggest developer, sank 3 percent to 225.1 rupees, extending this year’s loss to 23 percent.

Overseas investors sold a net 1.17 billion rupees ($26.1 million) of Indian equities on June 13, paring investments in equities this year to 846 million rupees, according to data on the website of the Securities and Exchange Board of India.

--With assistance from Santanu Chakraborty in Mumbai. Editors: Abhay Singh, Arijit Ghosh

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net.

To contact the editors responsible for this story: Darren Boey at dboey@bloomberg.net


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