Indian stocks declined, with the benchmark index completing its worst May performance since 2006, as a government report showed the economy grew at the slowest pace in nine years.
ICICI Bank Ltd. (ICICIBC), the nation’s biggest private lender, and Tata Motors Ltd. (TTMT), which owns Jaguar Land Rover, sank to their lowest price in four months. Asia’s third-largest economy grew 5.3 percent in the March quarter, compared with a median 6.1 percent of 31 estimates in a Bloomberg survey.
The BSE India Sensitive Index (SENSEX), or Sensex, slid 0.6 percent to 16,218.53 at the close, its lowest level since May 25. The gauge lost 6.4 percent this month, the biggest decline since a 14 percent slump in May 2006. Discord in the ruling coalition and claims of graft have caused policy gridlock, impeding Prime Minister Manmohan Singh’s push to open up the economy. Investments fell to 34.4 percent of gross domestic product last fiscal year from 38.1 percent in 2007-2008, according to Morgan Stanley. (MS:US)
“There’s policy paralysis in the government,” said Anil Singhvi, chairman at Ican Investment Advisors Pvt., by phone from Mumbai. “Unless day-to-day action is taken, we will reach a level of despondency. We are close to a meltdown.”
While growth has slowed in countries from Brazil to China amid Europe’s debt crisis, India’s record trade deficit, the widest budget gap and the fastest inflation among the so-called BRIC nations and policy reversals have contributed to the 12 percent decline in the Sensex from its Feb. 21 high. The rupee has weakened 9 percent this quarter, the worst performance in Asia. Standard & Poor’s cut India’s credit outlook to negative from stable last month, imperiling its investment grade status and saying the political environment is “unfavorable.”
“If our current account deficit continues at current levels and the lack of reforms continues, it doesn’t take a genius to see we could see a cut in our ratings,” Ican’s Singhvi said. “The central bank has been saying that it cannot tackle inflation through its policies alone.”
The Reserve Bank of India signaled government spending, the rupee’s slide and oil costs may curb scope for more rate cuts. It reduced the benchmark rate last month for the first time in three years, after raising it a record 13 times from March 2010 to October last year to cool inflation. The bank is set to review borrowing costs on June 18.
“The terrible GDP numbers clearly indicate that interest rates need to come down fast to trigger capital expenditure and investment cycles and consumption,” Sudip Bandyopadhyay, chief executive officer at Destimoney Securities Pvt., said by phone. “We’re headed for turbulence if RBI doesn’t signal rate cuts.”
Foreign funds have pared holdings of local shares by $161 million this month, after turning net sellers of local equities in April for the first time this year, worsening the rupee’s slide. The Sensex trades at 12.7 times future earnings, near the lowest level in more than three years. That compares with 9.8 times for the MSCI Emerging Markets Index.
“Foreign flows have taken a backseat as the macro factors are not in our favor, and it’s unlikely we will get fresh funds at current valuations,” Shishir Bajpai, senior vice president at IIFL Wealth Management Ltd., said by telephone from Mumbai. “Slow growth will stress earnings and the rupee.” IIFL has $1.8 billion in stocks under management and advisory.
Nine out of 30, or 30 percent, of Sensex companies posted March-quarter profits that trailed analyst estimates, compared with 47 percent in the December quarter and 40 percent in the previous three months. Still, analysts have cut their earnings forecasts for the year to March 2013 by 14 percent since April 2011 to 1,281 rupees per share, the most since the financial crisis in 2009, according to 1,600 estimates compiled by Bloomberg.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty (NIFTY) Index, fell 0.2 percent to 25.3. The Nifty lost 0.5 percent to 4,924.25. The BSE 200 Index fell 0.2 percent. More than 700 million shares traded on the BSE and NSE yesterday, 21 percent less than the 12-month daily average.
ICICI Bank sank 2.2 percent to 783.3 rupees, while State Bank of India, the biggest, fell 2 percent to 2,056.1 rupees. The BSE Bankex Index of 14 lenders dropped for a second day, losing 0.9 percent.
Tata Motors retreated 4.1 percent to 233 rupees, the lowest level since Jan. 25. Yesterday, the stock had its steepest drop since April 2009 after its main Jaguar Land Rover unit posted earnings that missed some analysts’ estimates.
Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker, lost 4.4 percent to 1,100.25 rupees, the most in two weeks.
Suzlon Energy Ltd. (SUEL) fell 9 percent to 17.9 rupees after the stock was deleted from the MSCI Asia Pacific index.
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