India's Sensex Falls Most Since November 2009 on Inflation, Oil Concerns

India’s benchmark stock index tumbled the most in more than 15 months as food-price gains accelerated and surging oil prices stoked concern inflation will lead to higher interest rates.

Tata Motors Ltd., the nation’s biggest truck-maker, sank 7.8 percent, the most in 22 months. Larsen & Toubro Ltd., the largest engineering company, slid 5.3 percent. An index of wholesale farm-product prices rose 11.49 percent in the week ended Feb. 12 from a year earlier, after climbing 11.05 percent the previous week, the commerce ministry said today. Oil surged to the highest in 30 months in London as Libya’s violent uprising cut supplies from Africa’s third-biggest producer.

The Bombay Stock Exchange Sensitive Index, or Sensex, slid 545.92, or 3 percent, to 17,632.41 at the 3:30 p.m. close in Mumbai, the biggest drop since Nov. 3, 2009. The gauge has lost 7.9 percent since the central bank boosted interest rates on Jan. 25 and raised its inflation estimate. The bank urged the government to cut subsidies in its budget due Feb. 28 to curb consumer demand.

“The geopolitical risk has flared up; if oil goes up, it’s a big risk to the country,” said Amit Nigam, a fund manager at BNP Paribas Asset Management India Pvt. in Mumbai, which manages $1 billion in assets. “Investors would like to watch in the budget how the finance minister manages the fiscal and current account deficit, and sustains the pace of growth.”

The S&P CNX Nifty Index on the National Stock Exchange slid 3.2 percent to 5,262.7. The index’s futures for March expiry dropped to 5,286.90. February futures expire today. The BSE 200 Index retreated 3 percent to 2,163.72.

Third Worst

The Sensex has lost 14 percent this year, making it the world’s third-worst performing benchmark index on concern government measures to quell inflation will hurt economic growth. The gauge has slumped 16 percent from a Nov. 5 record.

Companies on the measure are valued at an average 16.6 times estimated earnings, down from last year’s high of about 21.5 times in March, according to data compiled by Bloomberg. Last year, India’s gauge climbed 17 percent, adding to the 81 percent surge in 2009.

Tata Motors, the biggest truckmaker and owner of Jaguar Land Rover, plunged 7.8 percent to 1,054.4 rupees. The stock’s March futures dropped to 1,063.5 rupees. Larsen & Toubro decreased 5.3 percent to 1,516.4 rupees, while its March futures settled at 1,526.40 rupees.

Mahindra & Mahindra Ltd., the largest maker of sport- utility vehicles and tractors, retreated 3.8 percent to 616 rupees, its lowest close since August 30. Maruti Suzuki India Ltd., the biggest carmaker, fell 1.5 percent to 1,174.55 rupees, while its March futures settled at 1,142.70 rupees.

Higher Interest Rates

Central bank Governor Duvvuri Subbarao last month increased interest rates for the seventh time since March to curb inflation he expects to accelerate to a 7 percent rate by March 31. That’s up from an earlier assessment of 5.5 percent. The central bank is aiming for an inflation rate of 4 percent to 4.5 percent.

The Reserve Bank of India reserves the right to change its policy stance anytime, according to the copy of a speech by Subbarao circulated today.

“Our biggest challenge has been to manage the tension between the demand of growth and inflation,” he said in a speech to the graduating students at a university in the eastern state of Orissa. “We are sensitive to the need for supporting growth as economic growth is a necessary condition for poverty reduction.”

‘Crazy Jumble’

Rising oil prices due to the Middle East crisis is a concern that Indian equities have not fully priced in yet, Sunil Singhania, head of equities at Reliance Capital Asset Management Ltd., India’s biggest money manager, said on Feb. 22.

Higher fuel prices push up food costs by boosting transport rates. That will worsen the “crazy jumble” of items including erratic weather patterns and underproduction of staple foods due to rising affluence that are pushing up prices in developing Asia, Mark Matthews, a Singapore-based strategist at Macquarie Group Ltd., said in a Bloomberg Television interview yesterday.

The wholesale-price index for food articles averaged approximately 17.2 percent in the past year. Milk, eggs, fish and meat were the main contributors to food inflation in recent years as rising incomes prompted consumers to buy more protein- based products, Goldman Sachs Group Inc. said this month.

State Bank of India Ltd., the biggest lender, sank 3.4 percent to 2,528.65 rupees, its third day of declines. ICICI Bank Ltd. slumped 5.4 percent to 951.35 rupees, extending this year’s drop to 17 percent. Housing Development Finance Corp., the biggest mortgage lender, slipped 4.7 percent to 616.8 rupees, while March futures settled at 620 rupees.

Workers March

Thousands of workers from across India marched toward the country’s parliament in New Delhi yesterday protesting rising food costs, low wages and job insecurity.

“What we are seeing today is pre-budget nervousness,” said Deepak Jasani, head of retail research at HDFC Securities Ltd., the brokerage arm of India’s second-largest private lender. “At the same time, things on the global front are jittery. We have been cautious for the past 1 1/2 months, and have recommended clients to be light on equities.”

Hero Honda Motors Ltd., the biggest motorcycle maker, advanced 1.5 percent to 1,494.75 rupees, extending yesterday’s 5.9 percent jump. The company’s parent received approval from the Foreign Investment Promotion Board to raise 45 billion rupees from overseas investors.

Overseas Investment

Bain Capital LLC and the Government of Singapore Investment Corp. will invest 45 billion rupees in Hero Group, Bloomberg UTV reported, without saying where it obtained the information.

Jennifer Lewis, a spokeswoman at GIC, couldn’t be reached immediately for a comment on her office or mobile phone. Alex Stanton at Stanton Public Relations & Marketing said in an e- mail Bain Capital declined to comment. Hero Group’s spokesman Ashwani Sharma did not immediately respond to a call and e-mail questions on the investments.

Aurobindo Pharma Ltd. slumped 17 percent to 170.15 rupees, the most since October 2008, after U.S. regulators restricted imports from a facility supplying drugs to Pfizer Inc. The stock posted the biggest decline on the BSE 200 Index.

Overseas investors bought a net 924 million rupees ($20.5 million) of Indian equities on Feb. 22, paring total outflow from equities this year to 66.1 billion rupees, according to data on the website of the Securities and Exchange Board of India.

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

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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