India Sensex Has Worst Quarter Since 2008; Mining Stocks Plunge

Indian stocks dropped, completing their worst quarter since 2008, as Coal India Ltd. (COAL) slid after the cabinet approved a bill making companies mining coal and other minerals pay for development of areas where they operate.

Coal India, the world’s biggest producer of the fuel, lost 5 percent, a six-month low. Coal miners must share 26 percent of their earnings, and other miners must pay an amount equal to the royalty collected by the government for mineral extraction, according to the bill. State Bank of India (SBIN) Ltd., the largest lender, dropped for a third day, losing 2.1 percent.

The BSE India Sensitive Index, or Sensex, slid 1.5 percent to 16,453.76 at the 3.30 p.m. close in Mumbai. The measure has lost 13 percent of its value in the quarter ending today, the most since the three months ended December 2008, on concern the Reserve Bank of India’s record monetary tightening will slow economic growth and erode company earnings.

“There will be a slowdown and economic growth would be closer to 7.5 percent, compared with 8.5-to-9 percent which people were talking about at the beginning of the year,” K. Ramanathan, chief investment officer with Mumbai-based ING Investment Management Pvt., said in a Bloomberg UTV interview.

Food prices accelerated for the first time in four weeks, the trade ministry said yesterday, maintaining pressure on the RBI to boost rates further. Food has a weighting of 14 percent in the wholesale-price index, India’s benchmark price gauge.

The wholesale-price inflation reached a 13-month high of 9.78 percent in August, staying above 9 percent for a ninth month, prompting the RBI to raise rates on Sept. 16 for a 12th time since March 2010. The next policy meeting is due Oct. 25.

India’s economy grew 7.7 percent last quarter from a year earlier, the slowest pace since 2009, according to a Aug. 30 government report.

Earnings Concerns

The Sensex has fallen 20 percent this year on concern the increases in borrowing costs and slowing global expansion will erode company profits. Earnings for 47 percent of the companies on the gauge missed analyst estimates in the June quarter, up from 33 percent that lagged behind forecasts in the previous three-month period, according to Bloomberg data.

“Consensus earnings estimates have been brought down from 22 percent in the beginning of the year to 14-to-15 percent,” ING’s Ramanathan said.

Infosys Ltd. will announce results on Oct. 12, the first company in the Nifty index to post earnings for the September quarter. The stock fell 0.7 percent to 2,533.05 rupees, ending a four-day rally.

The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. fell 1.4 percent to 4,943.25. The BSE 200-Index lost 1.3 percent to 2,028.27.

Mining Bill

Coal India plunged 5 percent to 333.2 rupees, the lowest close since March 11. Tata Steel Ltd. (TATA), the biggest producer of the alloy, lost 4.2 percent to 415.4 rupees, the lowest level in more than two years. Sterlite Industries (India) Ltd., the biggest copper producer, slid 4.1 percent to 113.7 rupees, the lowest in 28 months.

The new mining bill, which will replace laws drafted more than five decades ago, aims to win support for industry from local people who have received little or no benefit from the mining of resources. Their exclusion has made many remote Indian villages a rich recruiting ground for Maoist rebels.

The country could lose $80 billion of investment in developing mineral deposits should the government fail to stop rebel violence, London-based Execution Noble Ltd. has said.

State Bank lost 2.1 percent to 1,911.05 rupees. ICICI Bank Ltd. (ICICIBC) declined 1.7 percent to 875.4 rupees while HDFC Bank Ltd. (HDFCB) slid 0.6 percent to 467.65 rupees. Axis Bank Ltd. (AXSB) dropped 4.8 percent to 1,018.9 rupees after the lender offered home loans at a fixed interest rate of 11.75 percent for a 20-year period.

‘Asset Quality’

The BSE India Bankex Index comprising 14 lenders has lost 23 percent of its value in the past year on concern banks may report an increase in bad loans amid a slowdown in the economy. Companies on the gauge trade at 12.3 times estimated earnings, with 10 percent of the lowest level since May 2009.

“We continue to be underweight state-run banks, although valuations are pretty cheap,” ING’s Ramanathan said. “There are issues on the horizon in terms of asset quality and pension liability, which could crop up in the next few quarters. We are cautious on banks which have a larger exposure to infrastructure and power sectors.”

The BSE India Power Index and the BSE India Capital Goods Index have each plunged 30 percent this year as the government took fewer policy decisions after a minister, bureaucrats and company officials were jailed over corruption charges, delaying awarding of new infrastructure projects.

Phone-Permit Probe

Reliance Communications Ltd. (RCOM), the flagship company of billionaire Anil Ambani, plummeted to a record 71.75 rupees after investigators widened a mobile phone-license probe. Group company Reliance Capital Ltd. (RCAPT) plunged 12.4 percent to 315.2 rupees, the lowest in 30 months.

India’s rupee lost 6 percent in September, its sharpest monthly fall in three years, as Asian currencies slumped on concern the global economy is headed for a recession, dimming the outlook for exports and prompting investors to favor safer bets than emerging-market assets.

Overseas funds bought a net 2.52 billion rupees ($51.5 million) of local equities on Sept. 28, reducing the outflow from equities this year to 2.92 billion rupees, according to data on the website of the market regulator. They withdrew a net $2.4 billion in August, the most since October 2008.

India’s $1.2 trillion stock market, Asia’s fourth-biggest, is influenced by foreign fund flows. Inflows from abroad surged to a record $29.4 billion in 2010, making the Sensex the best performer among the world’s top 10 markets. The largest-ever outflow in 2008 led the biggest annual slump of 52 percent.

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

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

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