Indian Stocks Decline on Europe, Rate Concern; DLF, Larsen Lead

India’s benchmark stock index had the worst weekly loss in a month on speculation European policy makers will struggle to reach a resolution and the country’s central bank may persist with monetary tightening.

DLF Ltd., India’s biggest real estate developer, slid 2.5 percent after the market regulator said it would investigate a complaint against an affiliate company. Larsen & Toubro Ltd., the largest engineering company, tumbled the most in a month after it lowered its new order forecast. Tata Motors Ltd., the owner of Jaguar Land Rover, dropped for a second day.

The BSE India Sensitive Index, or Sensex, fell 151.25, or 0.9 percent, to 16,785.64 at the 3:30 p.m. close in Mumbai. The gauge lost 1.7 percent this week, the most since the five-day period ended Sept. 23. The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. declined 0.8 percent to 5,049.95. The BSE-200 Index retreated 0.9 percent.

“There’s some scope for disappointment over the Euro zone plan,” Robert John Parker, a senior adviser at Credit Suisse Asset Management, said in an interview with Bloomberg UTV. “We have still got a number of major obstacles to overcome.”

Europe may combine temporary and permanent rescue funds to unleash as much as 940 billion euros ($1.3 trillion) to fight the crisis, according to two people familiar with the matter, before a debt summit this weekend.

The Reserve Bank of India will increase rates on Oct. 25, according to a Bloomberg survey, even as policy makers across the world take steps to shield their economies from Europe’s crisis and a faltering U.S. recovery.

“We may see one final round of interest-rate increases and we have yet to see any improvement in inflation,” said Parker.

Orders Shrink

Larsen & Toubro retreated 3.6 percent to 1,335.3 rupees, extending this year’s loss to 33 percent. The company reduced its forecast for orders to 5 percent from 15 percent for the year ending March 31, Chief Financial Officer Shankar Raman said today. Net income for the three months ended Sept. 30 rose 4.3 percent, beating analysts’ estimates.

DLF shed 2.5 percent to 224.9 rupees. Housing Development Finance Corp. (HDFC), the biggest mortgage lender, slid 1.8 percent to 633.4 rupees, extending yesterday’s 4.3 percent plunge. Bharti Airtel Ltd. (BHARTI), the largest cell-phone operator, fell 3.1 percent to 378 rupees. Tata Motors fell 2.7 percent to 178.15 rupees.

The Sensex has plummeted 18 percent this year on concern Europe’s debt crisis and slowing economic growth in the U.S. may worsen the effects of the central bank’s record increases in borrowing costs on corporate profits. Companies on the gauge trade at 14.2 times estimated earnings, compared with 9.7 times on the MSCI Emerging Markets Index.

Food Costs

A top economic adviser to Indian Prime Minister Manmohan Singh signaled the need for higher borrowing costs before next week’s monetary policy decision as food inflation accelerated to near a six-month high. Governor Duvvuri Subbarao has boosted borrowing costs by 350 basis points since the start of 2010, the fastest monetary tightening on record in India.

“The fact that inflation is triggered by food inflation or supply-side constraints doesn’t mean that monetary policy doesn’t have a role to play,” Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, told reporters in New Delhi yesterday.

India’s wholesale-price index climbed 9.72 percent in September and averaged 9.6 percent in 2011, government data show. Inflation was 7.3 percent in Brazil, 7.2 percent in Russia and 6.1 percent in China last month from a year ago.

Rupee Sinks

The rupee today weakened past the 50 per dollar level for the first time in more than two years on speculation slowing economic expansion and faster inflation will deter foreign investment. The currency has declined 11 percent this year, the worst performance among Asia’s 10 most-traded currencies.

“European investors invested a lot of capital in Asia when the 2008 financial crisis eased and now there’s concern they will pull this back,” said Jonathan Cavenagh, senior currency strategist with Westpac Banking Corp. in Singapore. “India stands to lose more than its peers as the country is running a current-account deficit. The growth outlook has weakened and inflation remains stubbornly high” in the region, he said.

India’s $1.7 trillion economy, Asia’s third-biggest, buys more than 75 percent of its fuel needs from abroad, and imports farm commodities including pulses, edible oils, natural rubber, and some grades of steel. A weaker currency raises the cost of importing raw materials.

Overseas funds bought a net 173 million rupees of local equities on Oct. 19, paring their outflow from equities this year to 9.67 billion rupees, according to data on the website of the regulator. They withdrew a net $2.4 billion in August, the most since October 2008.

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

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

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