Bloomberg News

India’s Sensex Drops to a Three-Week Low on Rupee, Inflation

December 15, 2011

Dec. 15 (Bloomberg) -- India’s benchmark stock index fell to its lowest level in almost three weeks on concern a slumping currency and faster-than-estimated inflation may limit efforts to stimulate slowing growth in the South Asian nation.

Bharti Airtel Ltd., India’s largest mobile-phone operator, tumbled 3.5 percent after a report said the nation’s telecom regulator may take legal action. The rupee slid to a record, hurt by parliamentary gridlock, high inflation, a widening budget gap and the weakest quarterly economic growth in two years. Inflation remained at more than 9 percent for a 12th month, data showed yesterday. Larsen & Toubro Ltd., the biggest engineering company, lost 2.3 percent, a sixth day of losses.

“Things are looking bleak,” Ved Prakash Chaturvedi, chief executive officer of the capital markets and investment management group at L&T Finance Holdings, told Bloomberg UTV. “Globally, investors are in a panic and more needs to be done to reassure them of the opportunities in India.”

The BSE India Sensitive Index, or Sensex, slid 44.67, or 0.3 percent to 15,836.47 at the 3:30 p.m. close in Mumbai, its lowest close since Nov. 25. The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. lost 0.4 percent to 4,746.35, while its December futures traded at 4,765.10. The BSE 200 Index fell 0.3 percent to 1,912.34.

The Sensex has slumped 23 percent this year as the falling rupee, record interest-rate increases by the central bank and the European crisis fueled concern earnings will be hurt. The gauge trades at 13.7 times estimated profits, down from 21.5 times in March 2010. The MSCI Emerging Markets Index is valued at 9.8 times.

Economic ‘Tsunami’

The MSCI Asia Pacific Index of stocks dropped for a third day, losing 1.5 percent, on speculation Europe’s debt problems may worsen. Italy’s five-year yield rose to a 14-year high at an auction yesterday and default swaps protecting European sovereign debt traded near a record high as plans hashed out last week to create a closer fiscal union failed to alleviate concern about the crisis. The European Union is India’s largest trading partner, according to the commerce ministry.

“The tsunami we have seen in the last six months, ranging from interest rates to exchange rates to export slowdowns, global problems to internal issues, has taken a toll,” Kaushal Aggarwal, managing director at Avendus Capital Pvt., told Bloomberg UTV yesterday. “Globally, we are not seeing any signs or any change happening at least in the next 18 months.”

Still, Prime Minister Manmohan Singh forecast in an interview yesterday that gross domestic product will increase 7.5 percent in this fiscal year, while inflation will cool to between 6 percent and 7 percent. Once the global economy stabilizes, India will return to 8.5 percent to 9 percent trend growth, he said.

Retail Legislation

Singh pledged to overcome opposition to opening the country’s retail industry to companies like Wal-Mart Stores Inc. and Tesco Plc, saying his two-decade reform agenda is the best way of reviving growth. The government backtracked last week on a plan to open the nation’s $396 billion retail sector, eroding investor confidence and helping send the Sensex to its biggest three-day drop since July 2009.

India’s economy grew 6.9 percent in the last quarter, the least in more than two years, and factory output contracted 5.1 percent in October from a year ago, the first drop since 2009. Inflation grew 9.11 percent in November, data showed yesterday, even after the Reserve Bank of India raised rates a record 13 times since March 2010. It’s next policy review is tomorrow.

The rupee touched a record low of 54.305 a dollar before closing at 53.645, taking its drop this year to 18 percent. A weak rupee boosts import prices in a country that imports 80 percent of its fuel and increases repayment costs for companies holding foreign-currency debt.

Crisis Spreading

The risk of Europe’s credit crisis spreading to Asia may widen the extra yield investors demand to own Indian companies’ overseas bonds, further raising refinancing costs for borrowers in the nation, Moody’s Investors Service said yesterday.

Bharti tumbled 3.5 percent to 336.65 rupees, the lowest since March 24. The Telecom Regulatory Authority of India is close to taking legal action against the company for violating mobile-number portability guidelines, Financial Express reported, citing a TRAI official it didn’t identify.

Larsen slumped 2.3 percent to 1,133.10 rupees, the lowest close since May 15, 2009, and Sterlite Industries (India) Ltd., the biggest copper producer, plunged 4 percent to 93.35 rupees, the lowest close since April 22, 2009.

Advance Tax

State Bank of India tumbled 2.7 percent to 1,736.80 rupees after an Indian income tax official said the largest lender may pay an advance tax of 17 billion rupees for the quarter ended December, compared with 18.5 billion rupees paid last year. The official declined to be identified, citing department policy. Tata Motors Ltd., the biggest truck-maker, lost 2.5 percent to 172.65 rupees after the official said the company may pay 800 million rupees as tax, down from 2.2 billion rupees last year.

Tata Power Co. Ltd., the largest non-state generator, rallied 4.6 percent to 90.70 rupees, the most on the Sensex. It may pay 800 million rupees as advance tax, compared with 600 million rupees last year, the tax official said. Hindustan Unilever Ltd. climbed 2.8 percent to 395.20 rupees. India’s largest consumer goods maker may pay 3 billion rupees as advance tax, against 2.2 billion rupees last year.

Overseas investors sold a net 558 million rupees of Indian stocks on Dec. 14, taking their withdrawals this year to 17.3 billion rupees, according to data from the Securities & Exchange Board of India.

--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.


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus