Bloomberg News

Indian Stocks Decline on Forecast Deficit to Widen to Record

December 28, 2011

Dec. 28 (Bloomberg) -- Indian stocks dropped for the second day before a report this week that may show the nation’s current-account deficit widened to a record.

ICICI Bank Ltd., the country’s second-biggest lender, paced declines among its peers. Hindalco Industries Ltd., an aluminum producer that controls U.S.-based Novelis Inc., dropped 2.5 percent. Reliance Industries Ltd., the country’s most valuable company, lost 2.3 percent.

The BSE India Sensitive Index, or Sensex, fell 0.9 percent to 15,727.85 at the 3:30 p.m. close in Mumbai. The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. lost 0.9 percent to 4,705.80. The BSE 200 Index fell 1 percent.

“If the deficit widens it has negative repercussions on growth, credit ratings and the rupee,” said Kislay Kanth, head of research at MAPE Securities Pvt. “There’s no clarity on how the government will manage its deficit. And that will impact investor sentiment.”

India’s current-account gap reached an unprecedented $18 billion in the three months ended Sept. 30, according to the median estimate of seven economists surveyed by Bloomberg before a Reserve Bank of India report due on Dec. 30.

The Sensex has slumped 23 percent in 2011, heading for its second-worst annual loss in more than three decades, on concern a weakening rupee and record interest-rate increases will worsen the effects of the European sovereign-debt crisis on corporate earnings.

Bond Risk

Derivatives that track the risk of owning India’s bonds and the rupee are surging the most since 2008 as economists predict the nation’s deficit will widen to a record. The rupee has tumbled 16 percent this year, making it Asia’s worst-performing currency, after export growth slumped to a two-year low and factory output contracted for the first time since 2009.

The declining currency increases debt-repayment costs for Indian companies, which have a record $11.4 billion of dollar bonds due in 2012. That’s double the five-year average of $5.6 billion, data compiled by Bloomberg show. A weak rupee also boosts import prices in a country that buys 80 percent of its fuel from overseas.

Asian stocks fell for a second day amid slow trading, with the regional benchmark index headed for the worst year since 2008 after a report showed U.S. housing prices fell. The MSCI Asia Pacific Index dropped 0.6 percent. The measure has declined 18 percent this year, set for the biggest decline since 2008.

Growth Outlook

“The current-account deficit will worsen as the growth outlook for economies including India and developments in the financial markets aren’t inspiring,” Koen Vanderauwera, a money manager who helps invest $6.5 billion of emerging-market debt from Luxembourg at KBC Asset Management SA, said in an interview yesterday. “The weak investor confidence will be reflected in the rupee’s decline and a slowdown in capital flows to India in the near term.”

The 30-stock Sensex trades at 13.7 times estimated profits, down from 21.5 times in March 2010. The MSCI Emerging Markets Index is valued at 10 times after the gauge dropped 20 percent this year.

Earnings forecasts for Sensex companies for the year ending in March 2012 have fallen 8.7 percent to 1,150 rupees per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg.

Bank Shares

ICICI Bank sank 4 percent to 697.35 rupees and larger rival State Bank of India declined 2 percent to 1,610.2 rupees. Axis Bank Ltd. dropped 1.5 percent to 832.6 rupees, its third day of losses.

Reliance Industries, owner of the world’s largest refining complex, tumbled 1.9 percent to 739.05 rupees. Hindalco decreased 2.5 percent to 116.6 rupees, extending this year’s fall to 53 percent, the most among the 30 Sensex companies. Sterlite Industries (India) Ltd., the largest copper producer, dropped 2 percent to 89.75 rupees.

Tata Power Co., the nation’s biggest electricity generator outside state control, gained 1.6 percent to 92 rupees after it signed an agreement with BP Alternative Energy to buy the remaining 51 percent stake in Tata BP Solar, a venture with BP Solar.

Overseas investors bought a net 3.64 billion rupees ($68.8 million) of Indian stocks on Dec. 27, paring their withdrawals this year to 22.7 billion rupees, data from the Securities & Exchange Board of India show.

--Editor: Matthew Oakley

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

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


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