Indian stocks completed their longest losing stretch this year after inflation unexpectedly accelerated in April, reducing the central bank’s scope to extend interest-rate cuts and stimulate economic growth.
State Bank of India and ICICI Bank Ltd. (ICICIBC), the nation’s two biggest lenders, erased advances of more than 2 percent each after the inflation report. Reliance Industries Ltd. (RIL), owner of the world’s largest refining complex, plunged to its lowest in three years. The BSE India Sensitive Index (SENSEX) dropped 0.5 percent to 16,215.84 at close. A fifth day of declines is the gauge’s longest run of losses since December.
Reserve Bank of India Governor Duvvuri Subbarao signaled last month that inflation might limit the room for further cuts after he slashed a key rate for the first time in three years. Pressure on Asian nations to support expansion has resurged as Greece’s political turmoil threatens to deepen Europe’s crisis, prompting China to cut banks’ reserve requirements on May 12.
“The aggressiveness of the rate cut will be tempered due sticky inflation,” Kaushik Dani, a fund manager with Peerless Mutual Fund, which has $706 million in assets, said by phone in Mumbai. “There’s a clear cut slowdown in the economy and the RBI will need to boost growth” by easing monetary policy.
The wholesale price index rose 7.23 percent, after gaining 6.89 percent in March, the trade ministry said. The median of 32 estimates in a Bloomberg survey was for a 6.67 percent gain. The economy likely grew 6.9 percent in the year through March 31, the least since 2009, and a report last week showed factory output unexpectedly fell in March as weaker domestic demand and tumbling exports hurt the economy.
Concern India’s outlook has worsened because of trade and fiscal deficits, policy gridlock, elevated consumer prices and faltering global growth has pressured the rupee. The currency lost 0.6 percent to 53.9575 per dollar, taking its losses over the past year to 16 percent, the most among 11 Asian currencies tracked by Bloomberg. Four out of 17, or 24 percent, of Sensex companies reported March-quarter profits that trailed analyst estimates, compared with 47 percent in the December quarter.
“Inflation number is a very uncomfortable statistic,” Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, told reporters in New Delhi. “Many people have been calling for an easing in monetary policy but it makes it difficult for RBI to moderate policy.”
The Sensex has dropped 12 percent from its Feb. 21 high, exceeding the 10 percent slump that signifies a correction to some investors. The measure’s 14-day relative strength index, which gauges how rapidly prices rose or fell, dropped to 27.9 today, the lowest since August. Some investors see readings below 30 as a signal to buy.
Offshore investors were net buyers for the second time in five days on May 11, purchasing $32.9 million and taking their total investment in equities this year to $8.8 billion, data from the regulator show. The flows, a record for the period, have come amid optimism the RBI will ease monetary policy to stimulate growth.
Policy makers will cut the repurchase rate by another 25 basis points to 7.75 percent by September, according to Nomura Holdings. Credit Suisse Group forecasts a 50 basis point cut.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty (NIFTY) Index, surged 3.5 percent to 23.26, the highest level since March 29. The Nifty lost 0.4 percent to 4,907.8. The BSE 200 Index (BSE200) fell 0.5 percent to 1,997.47.
Trading in the National Stock Exchange of India’s futures and options segment was halted for more than an hour following a technical glitch. The snag was caused by an “erroneous order cancellation request” and a “concurrent malfunction in the network layer,” the exchange said in a emailed statement.
State Bank lost 0.8 percent to 1,839.75 rupees. ICICI Bank Ltd., the second-biggest lender, tumbled 1.5 percent to 800.7 rupees. HDFC Bank Ltd., (HDFCB) the third-biggest, lost 2 percent to 500.55 rupees. The BSE’s Bankex Index of 14 lenders closed at a four-month low.
Reliance Industries declined 2.3 percent to 681.3 rupees. Tata Motors Ltd. (TTMT), the biggest truckmaker and owner of Jaguar Land Rover, dropped 2.3 percent to 290.6 rupees. DLF Ltd. (DLFU), the biggest developer, lost 2.5 percent to 182.55 rupees.
A total of 816 million shares traded on the BSE and NSE on May 11, 10 percent less than the 12-month daily average.
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