Bloomberg News

Indian Stocks Rebound From Steepest Three-Day Drop Since 2009

December 13, 2011

Dec. 13 (Bloomberg) -- India’s benchmark stock index rebounded from its biggest three-day drop since July 2009 as some investors judged the recent declines in the nation’s equities as excessive.

Hindalco Industries Ltd., the aluminum producer which also controls the Atlanta-based Novelis Inc., rallied 4.9 percent as the metal’s prices rose in London. Tata Power Co., the nation’s largest non-state generator, advanced 2.3 percent, recovering from the biggest drop since October 2008 yesterday. Reliance Industries Ltd., run by billionaire Mukesh Ambani, climbed 2 percent, the first advance in four days.

“It’s a relief rally,” Gurunath Mudlapur, managing director at Atherstone Capital Markets Ltd. in Mumbai, said by phone. “The optimism has gone out of the markets given slowing growth in India and the problems in Europe. It may be difficult to sustain these gains.”

The BSE India Sensitive Index, or Sensex, jumped 132.16, or 0.8 percent, to 16,002.51 at the 3:30 p.m. close in Mumbai, after swinging between gains and losses at least 22 times. The gauge tumbled 6 percent in the three days through Dec. 12. The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. climbed 0.8 percent to 4,800.6.

The Sensex has declined 22 percent this year, the second worst performer among major Asian markets, as record increases in funding costs and the rupee’s slump to a record worsened the effects of Europe’s debt crisis on earnings and stalled growth in the EU’s largest trading partner. The index may retreat a further 8 to 10 percent on “risk-aversion,” Mudlapur said.

Fund Flows

Overseas investors sold a net 2.92 billion rupees ($55 million) of local equities on Dec. 9, taking their withdrawals from stocks this year to 8.61 billion rupees, according to the market regulator. Foreign funds have cut holdings of domestic equities by $2.4 billion from a record $104.4 billion in July, contributing to a slide in stocks and the rupee.

The rupee touched a record low of 53.52 per dollar, taking this year’s decline to 16 percent, fueling inflation, boosting import prices and costs for refinancing foreign-currency debt.

The fiscal compact agreed at a European Union summit last week offered few new measures and doesn’t diminish the risk of credit downgrades on European nations, Moody’s Investors Service said yesterday, while Fitch Ratings said the summit did little to ease pressure on Europe’s sovereign ratings and predicted a “significant economic downturn” in the region.

As many as 24 of the 30 Sensex companies rallied. Hindalco rallied 4.9 percent to 129.55 rupees, paring its loss this year to 48 percent. Aluminum for three-month delivery rose as much as 1.1 percent on the London Metal Exchange.

Valuations Contract

Tata Power jumped 2.3 percent to 90.5 rupees after sinking 7.1 percent yesterday, and Reliance added 2 percent to 742.3 rupees, the most since Dec. 1.

Companies in the Sensex are valued at 13.8 times future profits, down from 21.5 times in March 2010. The MSCI Emerging Markets Index is valued at 10 times.

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 through this year even after seven rate increases by the central bank. Factory output contracted 5.1 percent in October from a year earlier, data showed yesterday, the first decline since 2009. That compares with the median estimate for a 0.7 percent drop in a Bloomberg survey.

The trade ministry may say tomorrow 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, Kaushik Dani, a fund manager at Peerless Mutual Fund, which has $1.1 billion in assets, said by phone from Mumbai yesterday. “The RBI will have to prioritize boosting growth over inflation management.”

--With assistance from Santanu Chakraborty in Mumbai. Editor: Ravil Shirodkar

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

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


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