Bloomberg News

India’s Sensex Retreats for Second Week on Greece, Interest Rate

June 17, 2011

June 17 (Bloomberg) -- Indian stocks dropped for the third day, with the benchmark index completing its second weekly decline, amid concern that a possible sovereign-debt default by Greece will derail the global economic recovery.

Tata Consultancy Services Ltd., the nation’s largest software exporter, which gets 27 percent of its revenue from Europe, fell the most in two months. Nearest rival Infosys Ltd. slumped for a fourth day. Housing Development Finance Corp., the biggest mortgage lender, slid to a one-month low after the central bank increased interest rates yesterday.

The Bombay Stock Exchange Sensitive Index, or Sensex, dropped 115.35 points, or 0.6 percent, to 17,870.53, at the 3:30 p.m. close in Mumbai. The gauge declined 2.2 percent this week, the steepest drop since the five days ended May 6. Asian stocks fell, capping the MSCI Asia Pacific Index’s longest weekly losing streak since 2004. The S&P CNX Nifty Index on the National Stock Exchange lost 0.6 percent to 5,366.40 and its June futures settled at 5,372.70. The BSE 200 Index decreased 0.7 percent to 2,225.66.

“There is nervousness in the markets,” said Arun Khurana, a fund manager at UTI Asset Management Co., India’s fourth- biggest mutual fund, with $15.2 billion in assets. “There could be a flight of capital from emerging markets on account of the problems in Europe.”

Tata Consultancy sank 3.6 percent to 1,109.2 rupees and its June futures settled at 1,115 rupees. Infosys decreased 1.1 percent to 2,769.65 rupees. Wipro Ltd., the third-biggest, fell 1.7 percent to 408.85 rupees. India’s biggest software exporters get more than 75 percent of their revenue from overseas.

Greek Crisis

The 10-member Bombay Stock Exchange IT Index dropped 1.9 percent to 5,818.66, its lowest close since September. That’s the steepest decline among the 13 industry groups on the bourse.

Greek Prime Minister George Papandreou called on his allies in parliament to back austerity measures needed to qualify for international aid and avoid a sovereign-debt default. Alan Greenspan, former Federal Reserve chairman, yesterday said a default by Greece is “almost certain.”

The Indian currency lost 0.4 percent this week to 44.88 per dollar. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, climbed 0.4 percent this week, extending last week’s 1.4 percent gain.

‘Getting Worse’

“The Greece debt situation is just getting worse and the dollar has strengthened because of that,” said Sudarshan Bhatt, chief currency trader at Corporation Bank in Mumbai. “The rupee isn’t getting any support from stocks either.”

The rupee may drop to 45.20 in the coming week, Bhatt said.

Hindalco Industries Ltd., the aluminum producer that controls Atlanta-based Novelis Inc., slid 1.9 percent to 169.85 rupees. The stock has lost 8.1 percent this week, the worst performer on the Sensex.

Housing Development slid 1.5 percent to 638.65 rupees on concern that higher borrowing costs will curb loans and consumer spending. The 14-member Bombay Stock Exchange Bankex Index declined for a second week.

The Reserve Bank of India increased the repurchase rate to 7.5 percent from 7.25 percent yesterday, extending the longest streak of monetary tightening in a decade, after India’s benchmark wholesale-price inflation accelerated to 9.06 percent in May from 8.66 percent in April. The bank signaled it may slow the most aggressive monetary tightening among Asia’s major economies as risks to global growth threaten to undermine consumer demand.

Living Costs

India joined nations from China to South Korea in stepping up the fight against surging living costs that have stoked protests in the South Asian nation. Accelerating inflation has contributed to a 13 percent decline in the benchmark stock index in Mumbai this year, the biggest drop in Asia, on concern rising rates will erode corporate earnings and economic expansion.

Rate increases will slow India’s economic expansion this year and help ease inflation to 6 percent “with an upward bias” by March 31, 2012, central bank Governor Duvvuri Subbarao said May 3. India’s economy may grow “around 8 percent” in the year through March, from 8.5 percent in the previous 12 months, he estimated.

Tata Steel Ltd., the largest producer of the alloy, surged 3.6 percent to 573.05 rupees after it sold its entire stake in Australia’s Riversdale Mining Ltd. to Rio Tinto Group for A$1.06 billion ($1.12 billion). Tata’s 26.3 percent holding in the Sydney-based coking coal developer almost doubled in value in less than four years, the company said.

Stocks on the Sensex measure are valued at an average 14.5 times estimated profit, down from 21.5 times in March 2010, last year’s high. The MSCI Emerging Markets Index trades at 10.7 times earnings.

Overseas investors sold a net 921 million rupees ($20.6 million) of Indian stocks on June 15, taking total withdrawals from equities this year to 3.81 billion rupees, according to data on the website of the Securities and Exchange Board of India.

--With assistance from Anil Varma in Mumbai. Editor: Abhay Singh, Indranil 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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