Sensex Index Falls For a Third Day; Reliance Natural, Maruti Suzuki Drop

Indian stocks fell after the central bank increased interest rates for the third time this year to control inflation.

Maruti Suzuki India Ltd., the maker of half the cars sold in India, dropped 1.4 percent. Reliance Natural Resources Ltd., a natural gas supplier owned by Anil Ambani, plunged by a record after the billionaire arranged to sell the company to his Reliance Power Ltd. at a discount. The Reserve Bank of India raised its benchmark interest rates on July 2, ahead of its July 27 policy meeting, to quell inflation.

“Knee-jerk stock-price dips due to a sell-off may be ideal entry-points for investors,” said Seth Freeman, chief executive officer of San Francisco-based EM Capital Management LLC, who in May correctly predicted the gain in small and mid-cap Indian stocks. “Having gotten this rate increase over now may set the stage for some marginal aggregate stock market gain over the second half of the year.”

The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 19.51, or 0.1 percent, to 17,441.44. The gauge declined for the third day after swinging between gains and losses at least 26 times. The S&P CNX Nifty Index on the National Stock Exchange was little changed at 5235.90. The BSE 200 Index was flat at 2,223.58.

Lower Volumes

Trading volume on the National Stock Exchange was at least 25 percent lower than last week’s average as a national 12-hour strike protesting inflation called by opposition political parties deterred some people from going to work. Volumes were “very low,” said Nilesh Karani, head of business development at Magnum Equity Broking Ltd.

“We are working with almost 50 percent of strength in our office,” said Deven Choksey, chief executive officer at K.R. Choksey Shares & Securities in Mumbai, who manages about $123 million.

Maruti lost 1.4 percent to 1,396.1 rupees. Reliance Communications Ltd., India’s second-largest mobile-phone operator, fell 2.8 percent to 185.5 rupees.

The Sensex was the best performer among the world’s 20 largest equity markets last quarter, even after central bank Governor Duvvuri Subbarao raised rates at a faster pace than nations including Indonesia and South Korea. Second-half buying of stocks by overseas investors is poised to surpass the first six months, according to the nation’s biggest bank, as the government predicts the economy will expand at the quickest pace in three years.

Expanding GDP

India’s $1.2 trillion economy will expand this year at the fastest pace since 2008, the government forecasts. Net stock purchases by overseas investors climbed 32 percent in the first half to $6.7 billion, according to data compiled by Bloomberg.

Reliance Natural sank 28 percent to 46.3 rupees, while Reliance Power, which is building generators in India, climbed 3.3 percent to 181 rupees.

Reliance Power offered one of its shares for every four of Reliance Natural, valuing the target at 43.825 rupees a share, 31 percent less than its July 2 close, before the talks were announced. The deal is worth 71.6 billion rupees ($1.53 billion), based on Reliance Natural’s 1.63 billion shares outstanding. A Reliance Power spokesman declined to comment on the figures.

Indian stocks may gain 10 percent by the end of this year, extending the longest quarterly rally since 1979, as the rate increase by the central bank won’t derail economic growth, Prudential Financial Inc. said.

Fund Flows

“In the near-term, the latest rate hike is likely to have a negative impact on the Indian stock market,” said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC, a unit of Prudential Financial, which oversees $693 billion. By the end of 2010, the benchmark Sensex index may rise to 19,200 as markets stabilize and the central bank is “seen as being ahead of the curve,” he said.

The main opposition Bharatiya Janata Party and communist parties, which independently called nationwide 12-hour stoppages, say truckers, shopkeepers and government workers are backing their protest of the government’s June 25 decision to stop subsidizing gasoline and diesel.

Overseas funds bought a net 5.37 billion rupees of Indian equities on June 30 and July 1, taking total investments in the stocks this year to 310.8 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:

Ashok Leyland Ltd. (AL IN), India’s second-biggest truckmaker, jumped 4.7 percent to 65.5 rupees, its highest in seven weeks. June sales more than doubled to 8,400 vehicles, it said in a July 2 filing.

FIEM Industries Ltd. (FIEM IN) soared 17 percent to 175.45 rupees, its highest close since the shares were listed in October 2006. The auto-parts maker signed agreements to set up manufacturing and purchasing ventures with Ichikoh Industries Ltd., a Japan-based maker of automotive equipment, according to its filing to the stock exchange today.

SREI Infrastructure Finance Ltd. (SREI IN) advanced 1.2 percent to 81.55 rupees. The company may raise 46 billion rupees for a private equity fund to invest in infrastructure, Business Standard reported, citing a company official it didn’t identify. Chairman Hemant Kanoria couldn’t immediately be reached at his office telephone for comment on the report.

Schrader Duncan Ltd. (SDL IN), a venture controlled by Schrader Bridgeport International Inc., jumped by its daily limit of 20 percent to 207.4 rupees. The company raised 2 billion rupees selling land in Mumbai, Press Trust of India reported yesterday, citing people it didn’t identify. Schrader Duncan’s Chairman J. P. Goenka wasn’t immediately available at his office telephone for comment on the report.

Television Eighteen India Ltd. (TLEI IN), a news broadcaster, climbed 2.9 percent to 97 rupees after saying it would consider a reorganization proposal on July 7. Group company IBN18 Broadcast Ltd. (IBN18 IN) surged 6.1 percent to 107.55 rupees.

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

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