Indian stocks fell the most in two weeks after manufacturing growth slowed in May, adding to signs of weakening demand after expansion in Asia’s third-biggest economy moderated to a nine-year low.
Reliance Industries Ltd. (RIL), the nation’s biggest company, declined to a two-week low. Larsen & Toubro Ltd. (LT), the largest engineering company, slid to a four-month low. The purchasing managers’ index was at 54.8 in May from 54.9 in April, HSBC Holdings Plc (HSBA) and Markit Economics said today. A number above 50 indicates growth.
The BSE India Sensitive Index (SENSEX), or Sensex, lost 1.6 percent to 15,965.16 at close, the most since May 16. The measure lost 6.4 percent last month, its worst May performance since 2006. Discord among the ruling coalition has stalled policy making, damping investments which Morgan Stanley (MS:US) estimates fell to 34.4 percent of GDP in 2011-2012 from 38.1 percent in 2007-2008.
“The government has absolutely stopped functioning,” Suresh Mahadevan, managing director at UBS Securities India, told Bloomberg UTV today. “Confidence level among corporates is low. I don’t see how we can grow faster in the fiscal year ending March 2013 than in 2012.”
India faces challenges from elevated inflation, a record trade deficit and the impact on Asian exports of the protracted debt crisis in Europe. The economy expanded 5.3 percent in the March quarter from a year earlier, the least since 2003, the government said yesterday. Standard & Poor’s in April reduced the nation’s credit outlook to negative from stable, citing “unfavorable” political environment.
The Sensex trades at 12.5 times estimated earnings, near the lowest level in more than three years, compared with 9.8 times for the MSCI Emerging Markets Index. The 30-stock gauge has retreated 13 percent from its Feb. 21 high, exceeding the 10 percent drop that signals a correction to some investors.
“I’ll be a buyer of India between 10 to 11 times earnings,” said UBS’s Mahadevan. “Things will be tough in the next two quarters after which there may be a recovery following action from the government and the Reserve Bank of India.”
The RBI pared its key interest rate on April 17 for the first time in three years, after increasing it by a record 13 times from mid-March 2010 to October last year to cool consumer prices. It has signaled government spending, the rupee’s slide and oil prices may limit scope for more cuts. The bank, due to review rates on June 18, forecasts the economy will recover in the year through March 2013, posting growth of 7.3 percent.
Infosys dropped 1.7 percent to 2,389.2 rupees while Tata Consultancy Services Ltd. (TCS) fell 1.7 percent to 1,224.6 rupees. Wipro lost 2.1 percent to 401.5 rupees. The three companies, with a combined 16 percent weighting in the Sensex, earn most of their revenue from overseas and benefit from a weak currency.
The rupee advanced 0.9 percent at close, after falling 6 percent last month in Asia’s worst performance and touched an all-time low of 56.5150 yesterday.
“The rupee is an unchartered territory and that is the biggest worry for the equity market right now,” Hans Goetti, Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, which manages the equivalent of $1.5 billion in assets, told Bloomberg UTV. “If you have a currency crisis in Europe, you have the risk-off trade and that will put downward pressure on the rupee and that increases inflationary pressures in India.”
Reliance Industries fell 2.9 percent to 685.25 rupees, the lowest price since May 17. Larsen & Toubro lost 3.2 percent to 1,134.9 rupees, the lowest level since Jan 12. Jindal Steel & Power Ltd. (JSP) slid 2.4 percent to 430 rupees.
BEML Ltd. (BEML) sank 3 percent to 417.4 rupees, the lowest since March 2009. The state-run construction equipment maker posted a 139.9-million rupees loss in the March quarter, compared with a profit of 702.5 million rupees a year earlier.
Thirty percent of Sensex companies reported March-quarter profits that missed analyst estimates, down from 47 percent in the December quarter and 40 percent in September. Yet, analysts have cut their earnings forecasts for the year to March 2013 by 14 percent since April 2011 to 1,281 rupees a share, according to 1,600 estimates compiled by Bloomberg.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, climbed 6 percent to 26.8, the highest reading since May 23. The Nifty lost 1.7 percent to 4,841.60. The BSE 200 Index dropped 1.7 percent. More than 1 billion shares traded on the BSE and NSE yesterday, 20 percent more than the 12-month daily average.
Overseas investors sold a net 6.35 billion rupees ($112.5 million) of Indian stocks yesterday, paring their investment in local equities this year to 418.6 billion rupees, data from the regulator show. They were net sellers of domestic stocks for a second month in May, pulling out $161 million. Funds withdrew $103 million in April for the first time this year.
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