Jaiprakash, ICICI Bank Lead Drop in Sensex Index on Rate Increase Concern

India’s stocks fell the most in three weeks after the central bank’s deputy governor said interest rates may be raised “any time” as the government allowed fuel prices to increase.

ICICI Bank Ltd., the country’s second-biggest lender, dropped 2.5 percent. Jaiprakash Associates Ltd., a power plant builder, dropped 2.8 percent. Deputy Governor K.C. Chakrabarty yesterday said in Mumbai that borrowing costs may be increased before or in a July 27 monetary policy meeting. The inflation rate may climb by almost a percentage point after gasoline and diesel prices were allowed to rise, the finance ministry forecast on June 26.

“An inflationary environment spooks equity markets,” said Sadanand Shetty, who manages $75 million in equities at Taurus Asset Management Co. in Mumbai. “We could see an inter-policy action by the Reserve Bank of India.” He said interest rates may be raised by as much as 50 basis points by the end of next month.

The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 240.17, or 1.4 percent, to 17,534.09. The gauge dropped the most since June 7 and is little changed this quarter. The S&P CNX Nifty Index on the National Stock Exchange lost 1.5 percent to 5,256.15. The BSE 200 Index retreated 1.2 percent to 2,229.56.

ICICI Bank declined 2.5 percent to 848.3 rupees. HDFC Bank Ltd., the third-biggest lender, lost 2.4 percent to 1,904.4 rupees. Jaiprakash decreased 2.8 percent to 128.05 rupees. Tata Motors Ltd., India’s biggest truckmaker, lost 2.3 percent to 770.95 rupees.

Policy Meeting

“The possibility of a rate hike is always there,” Chakrabarty said. “ It can probably happen before” the next monetary policy meeting.

Reserve Bank Governor Duvvuri Subbarao, who has raised interest rates twice since mid-March, said June 18 he would tighten monetary policy in a “calibrated” manner, given the cash squeeze in the economy and risks to growth posed by Europe’s debt woes. India’s benchmark whole-sale inflation index rose 10.16 percent in May.

“The prospect of an interest rate increase is like a hanging sword,” said Kishor Ostwal, managing director of CNI Research (India) Ltd., a publicly traded equities research provider in Mumbai. “Traders are hesitant to take fresh positions.” He advises investors to avoid shares of banks, real estate companies and automakers.

Metal Prices Drop

Sterlite Industries (India) Ltd., the largest copper and zinc producer, lost 1.4 percent to 167.45 rupees. Hindalco Industries Ltd., the biggest aluminum producer, sank 4.3 percent to 144.2 rupees. Tata Steel Ltd., the biggest producer of the alloy, plunged 3.7 percent to 481.6 rupees. Jindal Steel & Power Ltd., the nation’s second-biggest producer by market value, retreated 2.6 percent to 621.2 rupees.

Copper and zinc fell the most in three weeks, leading declines in commodities, on concern that growth in China, the world’s largest consumer of all industrial metals, will slow.

Copper lost as much as 4.2 percent and zinc dropped 5.1 percent, the biggest declines since June 4. The Shanghai Composite Index ended the day at its lowest in 14 months, after the Conference Board revised down its April gauge for China’s economic outlook to indicate a weaker expansion.

Overseas funds sold a net 2.84 billion rupees ($61 million) of Indian equities on June 25, paring their investments in the stocks this year to 303.7 billion rupees, according to the nation’s market regulator.

Inflows from overseas reached a record 834.2 billion rupees in 2009, exceeding the high set two years ago in local currency terms, as the biggest advance 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:

BGR Energy Systems Ltd. (BGRL IN) gained 4.6 percent to 741.35 rupees. The maker of equipment for power, oil and petrochemical industries was rated “buy” in new coverage by Goldman Sachs Group Inc. analysts led by Ishan Sethi, who said the company will be a “key participant” in the growth in power generation construction in India.

IndusInd Bank Ltd. (IIB IN) increased 2.5 percent to 205.6 rupees. The lender will raise 10 billion rupees by selling shares this financial year, the Economic Times reported, citing two people familiar with the matter. The money may be raised by selling shares to institutions or by issue of global depository receipts, according to the report.

IndusInd Bank’s Managing Director Romesh Sobti wasn’t immediately available to comment when called at his office.

GTL Infrastructure Ltd. (GTLI IN) climbed 1.3 percent to 47.7 rupees. Saudi Telecom Co. may buy a 10 percent to 15 percent stake in the venture created after Reliance Infratel Ltd., a unit of Reliance Communications Ltd., and GTL Infrastructure Ltd. merged this week, Business Standard reported, citing people it didn’t identify. GTL spokesman Vikas Arora said the company doesn’t comment on speculation.

Tata Chemicals Ltd. (TTCH IN) advanced 1.7 percent to 332.45 rupees. The world’s second-largest soda ash producer led gains among Indian producers after the government imposed a 16 percent duty on imports from China. GHCL Ltd. (GHCL IN) gained 1.5 percent to 49.55 rupees.

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

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