Indian stocks fell to a two-week low after the Asian Development Bank and Credit Suisse Group AG cut the nation’s growth forecast to the slowest pace since 2009.
Bharat Heavy Electricals Ltd. (BHEL), India’s biggest producer of power equipments, slid for the third day. Reliance Industries Ltd. (RIL), owner of the world’s largest refining complex, shed 1.7 percent. Infosys Ltd. (INFO), the second-largest software maker, added 1.2 percent before its earnings on April 13. Adani Enterprises Ltd. (ADE) and Tata Power Co., which own Indonesian coal assets, sank at least 2 percent after northwestern Indonesia was struck by a magnitude 8.7 quake.
The BSE India Sensitive Index (SENSEX), or Sensex, fell 0.3 percent to 17,199.40 at the close. The gauge erased an intraday loss of 1 percent as European equities rebounded from a two-month low before resuming the decline after news of the Indonesian quake and tsunami warnings in part of Asia and India.
“Were it not for the news of the earthquake and tsunami the market would have closed higher in line with the European markets,” Gajendra Nagpal, chief executive officer at Unicon Financial Intermediaries, said by phone from New Delhi. “The government’s GDP growth forecast will be difficult to achieve unless bold policy initiatives are taken. Other agencies are making the adjustment to their estimates accordingly.”
India’s gross domestic product will grow 7 percent in the year through March, the ADB said today, lower than a September forecast of 8.3 percent. Credit Suisse too expects the economy to grow at 7 percent, lower that its earlier forecast of 7.3 percent. India’s GDP rose 6.9 percent in the 12 months through March 2012, the least in three years, as costlier credit hurt expansion, government estimates show.
The MSCI All Country World Index (MXWD) has slid this week after U.S. jobs data missed forecasts, adding to signs global the economic growth may be slowing. The Sensex has risen 11 percent this year as foreigners put record amounts of money into shares on optimism the central bank will ease monetary policy at its policy meeting next week to spur economic growth.
“Emerging market as an asset class is being questioned by international investors,” Adrian Mowat, the chief Asia and emerging-market strategist at JPMorgan Chase & Co., said in an interview with Bloomberg UTV in Mumbai today. “Equity capital is coming out of the U.S. and Europe, and you need to give it higher returns to justify taking the cross-border risk. Emerging markets are not doing that.”
Still, expectations for a rate cut that helped fueled this year’s advance have been tempered after Finance Minister Pranab Mukherjee projected record government borrowing in his March 16 budget speech to plug a fiscal deficit. Policy gridlock and tax changes in the budget have clouded the outlook for investment flows into Asia’s third-largest economy, according to Mowat.
Mukherjee last month proposed to introduce the General Anti-Avoidance Rules, or GAAR, that will enable the taxing of companies the government believes are structuring deals to escape contributions. The rule will apply to foreign funds holding local stocks as well.
“Do investors investing in any other MSCI markets, or major markets that investors go into, worry about taxation?” Mowat said. “The answer is no; it is only in India.”
The Reserve Bank of India has signaled readiness to lower interest rates from a three-year high, while flagging inflation risks from government spending, oil prices and a weaker rupee.
The RBI may not cut rates on April 17, Morgan Stanley said in an e-mailed note today. There’s a 25 percent chance of a cut in the rate this month, compared with 50 percent previously, the bank said. The bank also reduced its forecast for cuts for the rest of the year to 75 basis points from 100 basis points.
Industrial output grew 6.6 percent in February, compared with a 6.8 percent growth in January, according to the median estimate of 27 analysts in a Bloomberg survey. The data is due to be released on April 12. Wholesale prices grew 6.7 percent in March, compared with 6.95 percent in February, according to the median estimate of 24 analysts surveyed by Bloomberg. The figure is due on April 16, the day before the RBI reviews rates.
India VIX, which measures the cost of protection against declines in the S&P CNX Nifty (NIFTY) Index, rose 1.7 percent to 22.29. The Nifty lost 0.3 percent to 5,226.85 and its April futures settled at 5,267. The BSE 200 Index (BSE200) decreased 0.7 percent.
The Sensex trades at 13.3 times future earnings, compared with the MSCI Emerging Markets Index’s 10.4 times, and at a price-book ratio of 2.8, less than the 10-year average of 3.3, according to data compiled by Bloomberg.
A total 900 million shares changed hands on the BSE and NSE yesterday, equivalent to the daily average in the past 12 months, according to data compiled by Bloomberg.
Bharat Heavy dropped 2.1 percent to 250.60 rupees, its third day of fall. Reliance Industries slid 1.7 percent to 730.30 rupees.
Sterlite Industries (India) Ltd. (STLT), the No. 1 copper and zinc producer tumbled 2.2 percent to 101.90 rupees. Tata Steel Ltd. (TATA), the biggest producer, lost 1.4 percent to 446.35 rupees.
Infosys rose 1.2 percent to 2,804.40 rupees, ending a three-day slide. Sun Pharmaceutical Industries Ltd. (SUNP), the most valuable drugmaker, climbed 1.7 percent to 576.60 rupees.
Adani Enterprises declined 2.8 percent to 307.25 rupees. Adani Power Ltd. (ADANI) shed 2.3 percent to 70.95 rupees. Tata Power declined 2 percent to 102.40 rupees.
Overseas investors sold a net 10.4 billion rupees ($203 million) of Indian stocks yesterday, paring their investment this year to 444.6 billion rupees, according to the nation’s market regulator.
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