Bloomberg News

Indian Stocks Tumble on Slower Factory Output, Greece Concerns

September 12, 2011

Sept. 12 (Bloomberg) -- Indian stocks fell, dragging the benchmark index to a two-week low, after the nation’s factory output slowed and as speculation Greece may be nearing a default escalated concern Europe’s debt crisis will spread.

Tata Motors Ltd., the nation’s biggest truck-maker, slid 4.3 percent after the group’s Chief Executive Officer Carl-Peter Forster resigned citing “unavoidable personal circumstances.” India’s industrial output grew at the slowest pace in 21 months as consumer demand wanes after record rate increases, and as the threat of a global slowdown clouds the outlook. Tata Steel Ltd., the country’s top producer, fell 4.6 percent, pacing declines among peers after the ministry lowered its forecast for industry’s demand growth.

“The factory output numbers are disappointing and may prompt the central bank to reconsider its stance on interest rates,” said Kaushik Dani, a fund manager at Peerless Mutual Fund. “Unfortunately, the markets are being hit by global as well as local negatives, all at the same time.”

The BSE India Sensitive Index lost 365.23, or 2.2 percent, to 16,501.74 at the 3:30 p.m. close in Mumbai, the most since Aug. 18 and the lowest level in two weeks. The S&P CNX Nifty Index on the National Stock Exchange of India slid 2.2 percent to 4,946.80 while its September futures traded at 4,943. The BSE-200 Index dropped 2.2 percent to 2,043.76.

The MSCI Asia Pacific Index fell 2.3 percent at 7:45 p.m. in Tokyo, headed for its lowest close since August 2010.

Austerity Package

Investors are valuing European banks at levels not seen since the depths of the credit crisis in 2008 as concern over a Greek default and debt contagion escalates. German lawmakers stepped up their criticism of Greece last week, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country’s progress.

Group of Seven finance chiefs meeting in France over the weekend vowed to support Europe’s banks amid growing concern that the debt crisis is morphing into a banking crisis, and doubts linger about the ability of some European lenders to withstand a Greek default and its ripple effects.

“Markets remain concerned about the global scenario,” Daljeet Kohli, head of research at India Nivesh Securities Pvt., said in a phone interview. “The situation in the euro zone and the U.S. remains sticky.”

Output at factories, utilities and mines rose 3.3 percent in July from a year earlier, following an 8.8 percent gain in June, the government said in New Delhi today. The median of 26 estimates in a Bloomberg survey was for a 6.2 percent advance.

‘Tricky Situation’

Reserve Bank of India Governor Duvvuri Subbarao has to weigh the risks to growth posed by Europe’s debt crisis, a faltering U.S. recovery against inflation when he makes his policy decision on Sept. 16. Asian central banks from South Korea to Malaysia kept borrowing costs unchanged last week as they assess the global economy.

India’s central bank has increased its repurchase rate 11 times since the start of 2010 to damp living costs that are rising the fastest among the so-called BRICS nations of Brazil, Russia, India, China and South Africa.

Benchmark wholesale-price inflation probably quickened to 9.64 percent in August, from 9.22 percent the previous month, according to the median estimate of 23 analysts in a Bloomberg survey. The government will release the data on Sept. 14.

India’s $1.7 trillion economy expanded 7.7 percent in the three months ended June from a year earlier, the slowest pace of expansion in six quarters. Slowing growth may prompt the Reserve Bank to pause raising rates, Press Trust cited Finance Minister Pranab Mukherjee as saying on Sept. 5. Earnings for 47 percent of the 30 Sensex companies missed analyst forecasts in the June quarter. That compares with 33 percent that trailed estimates in the previous quarter, Bloomberg data show.

Return to Profit

Tata Motors tumbled 4.3 percent to 146.35 rupees, the most since Aug. 19. Forster, 57, who helped the company’s Jaguar Land Rover luxury unit turn to profit in the year ended March 31, quit on Sept. 9 after less than two years as the global head of India’s biggest automaker.

State Bank of India, the largest lender, plummeted 4.6 percent to 1,863.40 rupees, its lowest close in two years. ICICI Bank Ltd., the largest private lender, sank 3.8 percent to 862.35 rupees.

Steelmakers retreated for a second day. Tata Steel lost 4.6 percent to 454.85 rupees. Jindal Steel & Power Ltd. fell 3.1 percent to 521.65 rupees and Steel Authority of India Ltd. dropped 3.7 percent to 107.95 rupees. Demand this fiscal year will probably expand at half the pace forecast in May, G.K. Basak, executive secretary of the steel ministry’s joint plant committee, said Sept. 9.

Good-Conduct Bond

Maruti Suzuki India Ltd., the nation’s largest carmaker, tumbled 3.2 percent to 1,068.25 rupees after Osamu Suzuki, chairman of Suzuki Motor Corp., which owns 54 percent of Maruti, said all workers will have to sign a good-conduct bond.

Maruti last month fired 23 employees and suspended 26 for “deliberately causing quality problems in vehicles” and prevented workers from entering its Manesar plant unless they signed a legally binding pledge not to disrupt manufacturing. Employees at the plant struck for 11 days in June to demand better working conditions and recognition of a trade union independent of the one now representing workers. The stock closed at its lowest since July 13, 2009.

The Sensex has retreated 20 percent this year, the worst performer in Asia. Companies on the gauge trade at 13.9 times estimated profits, compared with 9.8 times for the MSCI Emerging Markets Index.

Overseas funds purchased a net 294 million rupees ($6.36 million) of Indian stocks on Sept. 8, raising total investment in equities this year to 29.1 billion rupees, according to data on the website of the market regulator. They withdrew a net $2.1 billion in August, the most since October 2008.

--With assistance from Tanya Ashreena. Editor: Ravil Shirodkar

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net;

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


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