Bloomberg News

India Stocks Drop as Federal Reserve Cuts Growth Forecast

June 21, 2012

Indian stocks rose to a seven-week high after a decline in oil to the lowest level in eight months improved the outlook on inflation, and as JPMorgan Chase & Co. upgraded the nation’s equities.

Bharat Heavy Electricals Ltd. (BHEL), the biggest power-equipment maker, led its peers higher after the Mint newspaper reported the government plans to impose an import tax on foreign goods. State Bank of India Ltd., the nation’s biggest lender, soared the most in two weeks. The BSE India Sensitive Index (SENSEX) gained 0.8 percent to 17,032.56, its highest since May 3, at close.

India is “Asia’s big market to focus on,” Adrian Mowat, chief Asian and emerging-market strategist at JPMorgan Chase & Co., told Bloomberg TV today. “Oil is coming down, the central bank has cut interest rates and the currency is becoming more competitive. The outlook for Indian sequential data is going to improve.” JPMorgan raised India to overweight from neutral.

Oil fell below $80 a barrel for the first time in eight months as U.S. inventories increased amid concern that Europe’s debt crisis will drag down the global economy, reducing fuel demand. Falling energy costs improve India’s inflation outlook because the nation imports 80 percent of its crude.

The Reserve Bank of India unexpectedly left interest rates unchanged on June 18 after the inflation rate climbed more than estimated in May amid surging food and fuel prices. Curbing the fiscal deficit and the success of the monsoon rains are among the keys to controlling prices, central bank Governor Duvvuri Subbarao said on June 19. Wholesale-price growth of 7.5 percent is “above our tolerance level” and consumer-price inflation is “disturbing” at more than 10 percent, he said.

Rupee Weakens

Prime Minister Manmohan Singh is grappling with an economy hobbled by a record trade deficit, a budget shortfall that has exceeded targets, corruption scandals and coalition in-fighting that has stymied his efforts to lure more foreign investment. The rupee touched a record low of 56.5388 per dollar, tracking other Asian currencies, after the Federal Reserve reduced its growth estimate for the U.S.

The Sensex has advanced 10 percent this year and trades at 13.3 times estimated earnings, near a three-year low of 12.4 times reached on May 23. The MSCI Emerging Markets Index is valued at 10.2 times, according to data compiled by Bloomberg.

The S&P CNX Nifty Index gained 0.9 percent to 5,65.80 and its June futures settled at 5,176.60.5. India VIX, a gauge of options prices in the Nifty, plunged 5.2 percent to 19.94. The BSE-200 Index added 0.9 percent to 2,088.93. Combined trading volume on top two exchanges was 727 million shares yesterday, 20 percent less than the 12-month daily average of 904 million.

Industrials Climb

Bharat Heavy increased 3.6 percent to 222.8 rupees, the highest level since May 7. Larsen & Toubro Ltd. (LT), the largest engineering company, added 2.2 percent to 1,372.85 rupees. Tata Power Co. (TPWR) climbed 1.9 percent to 94.35 rupees.

State Bank of India (SBIN) soared 2.9 percent to 2,178.35 rupees. ICICI Bank Ltd. (ICICIBC), the nation’s second-biggest lender, gained 2 percent to 849.65 rupees. Axis Bank Ltd. (AXSB) added 2.5 percent to 1,025.45 rupees.

Reliance Industries Ltd. (RIL) lost 2.5 percent to 718.7 rupees. The owner of the world’s largest refining complex is struggling to boost output from its biggest natural-gas deposit in India and its shares declined after partner Niko Resources Ltd. (NKO) cut the area’s reserve estimates.

Niko, which owns 10 percent of the KG-D6 block, pared the estimate for its share of proved and probable gas reserves to 193 billion cubic feet as of March 31, according to a statement yesterday, which didn’t give the year-earlier figures. Reliance has 60 percent of the field and BP Plc (BP/) 30 percent.

The extrapolated estimate for the entire block would be 1.9 trillion cubic feet, less than 9.9 trillion assessed last year, said Gagan Dixit, an analyst at Quant Broking in Mumbai.

Reliance Spokesman Tushar Pania didn’t immediately comment.

Overseas investors bought a net $25.4 million of shares on June 19, raising purchases this year to $8.6 billion, data from the regulator show. They cut holdings by $273 million in May, a second month of net sales. Inflows this year are still at record levels, according to data compiled by Bloomberg.

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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