Dec. 12 (Bloomberg) -- Indian stocks dropped the most in Asia after the nation’s industrial output shrank in October for the first time in more than two years, sending the rupee to an all-time low and narrowing bond yields.
Reliance Industries Ltd., the country’s most valuable company, sank 3.7 percent, its sharpest loss in more than three months. State Bank of India, the largest lender, tumbled 5 percent. Factory output contracted 5.1 percent from a year ago after a revised 2 percent gain in September, data showed today. That’s the first decline since 2009 and higher than the median estimate for a 0.7 percent drop in a Bloomberg News survey.
The BSE India Sensitive Index, or Sensex, retreated 2.1 percent to 15,870.35 at the 3:30 p.m. close in Mumbai, the lowest since Nov. 25. The gauge has plunged 23 percent this year, the most among major Asian markets, as record increases in borrowing costs have combined with Europe’s debt crisis to stall growth in the EU’s largest trading partner.
“The drop in production is the first indication that we are in for a real slowdown,” said Kaushik Dani, a fund manager at Peerless Mutual Fund, which has $1.2 billion in assets, said by telephone from Mumbai. “Industrial activity is softening and economic growth is most likely to shift to a lower band.”
India’s economy grew 6.9 percent in the last quarter, the least in more than two years, and inflation has stayed above 9 percent all year even after seven interest-rate increases. The nation’s trade ministry may say Dec. 14 that wholesale prices eased to 9.04 percent last month, according to a Bloomberg News survey. The level would still be higher than in Brazil, Russia and China. The RBI’s next policy review is on Dec. 16.
“The monthly inflation numbers will be keenly watched as the data will determine the next course of policy action” for the central bank, Peerless’ Dani said. “The RBI will have to prioritize boosting growth over inflation management.”
The rupee weakened 1.3 percent to a record 52.746 a dollar as of 4:39 p.m., taking this year’s loss to 15 percent, Asia’s worst performance. The yield on the 8.79 percent government note due November 2021 was 8.45 percent, compared with 8.53 percent earlier.
The government backtracked last week on a plan to open the nation’s $396 billion retail sector to foreign companies such as Wal-Mart Stores Inc. and Tesco Plc, which might have helped damp inflation, offering discounted goods to consumers.
The S&P CNX Nifty Index on the National Stock Exchange of India lost 2.1 percent to 4,764.60. The BSE-200 Index sank 2.1 percent to 1,924.72, with losers exceeding gainers 7 for one.
State Bank dropped 5 percent to 1,772.75 rupees, the most in more than a month. Chairman Pratip Chaudhuri said the lender will cancel untapped lines of credit and reorganize its balance sheet to boost capital while it waits for an infusion of funds from the government. He spoke in an interview in Mumbai today.
Reliance Industries tumbled 3.7 percent to 727.5 rupees.
Bharti Airtel Ltd., the nation’s biggest mobile services company, sank 4.6 percent to 342.3 rupees, the most since Sept. 22. Bajaj Auto Ltd., the second-largest motorcycle maker, slid 2.4 percent to 1,631.1 rupees. Tata Motors Ltd., the owner of Jaguar Land Rover, lost 3.1 percent to 177.35 rupees.
Overseas investors sold a net 2.92 billion rupees ($56 million) of local stocks on Dec. 9, taking their withdrawals from equities this year to 8.61 billion rupees, the nation’s market regulator said today.
Foreign funds have still cut holdings of local shares by $2.4 billion from a record $104.4 billion in July, contributing to a slide in stocks and the rupee.
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