Sensex Index Falls on Concern Higher Borrowing Costs Will Curtail Growth

India’s benchmark stock index fell amid concern policy makers will raise borrowing costs next week as growth accelerates in the world’s second-fastest expanding major economy.

ICICI Bank Ltd., the country’s second-biggest lender, led declines in financial services companies. India’s factory output exceeded 15 percent for a third month in February, a report today showed, increasing pressure on the central bank to raise interest rates. Larsen & Toubro Ltd., the largest engineering company, slid the most in more than two months.

The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 80.14, or 0.5 percent, to 17,853. The S&P CNX Nifty Index on the National Stock Exchange lost 0.4 percent to 5,339.70. The BSE 200 Index retreated 0.4 percent to 2,243.01.

“The regulatory authorities would like to moderate our growth so as not to create asset bubbles,” said Deven Choksey, chief executive officer of K.R. Choksey Shares & Securities, who manages about $118 million for wealthy individuals. “Investors may avoid lenders, automakers and real estate companies until the Reserve Bank of India decision.”

ICICI Bank fell 1.4 percent to 964.65 rupees. The bank was cut to “equal-weight” from “overweight” at Morgan Stanley, which said the stock has outperformed and that revenue growth may be “tepid.” Larsen & Toubro slid 2.2 percent to 1,605.4 rupees. Jaiprakash Associates Ltd., a builder of dams and roads, dropped 1.1 percent to 150.15 rupees.

Expanding Output

Output at factories and mines rose 15.1 percent in February from a year earlier, the statistics department said in a statement in New Delhi today. Diminishing spare capacity may contribute to inflationary pressure, prompting the central bank to raise interest rates at an April 20 policy meeting. The reverse repurchase rate was raised last month to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent.

Expansion in Asia’s third-biggest economy after Japan and China is “consolidating,” central bank Governor Duvvuri Subbarao said March 22. Prime Minister Manmohan Singh aims to boost growth to 10 percent, a pace needed to pull 828 million people living on less than $2 a day out of poverty.

Sun Pharmaceutical Industries Ltd., India’s most valuable drugmaker, advanced 1.6 percent to 1,797.6 rupees. The stock led gains in the Sensex index after Sun got tentative U.S. Food and Drug Administration approval for its generic Namenda tablets.

Overseas Investment

Overseas investors bought a net 1.48 billion rupees ($33 million) of Indian stocks on April 8, taking their total purchases of the equities this year to 242.6 billion rupees, according to the nation’s market regulator.

Foreign funds have been net buyers of stocks for 25 trading days, the longest streak of inflows since August 2005, after Finance Minister Pranab Mukherjee on Feb. 26 pledged to trim the fiscal deficit from a 16-year high.

Inflows from overseas reached a record 834.2 billion rupees in 2009, exceeding the high set two years earlier in domestic currency terms, as the biggest rally in 18 years lured foreign funds. They sold a record 529.9 billion rupees of shares in 2008, triggering a record annual decline.

The following were among the most active on the exchange:

Siyaram Silk Mills Ltd. (SIYA IN), a textile maker, climbed 2.6 percent to 170.75 rupees, its highest close in more than two years. The company’s board will meet on April 14 to consider an interim dividend, according to a statement to the Bombay Stock Exchange.

Unitech Ltd. (UT IN) rose 2.9 percent to 78.1 rupees, its steepest advance in a month. India’s second-biggest developer’s board will meet on April 20 to consider the recommendations of a committee on restructuring and acquisitions, according to its statement to the stock exchange.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

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