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Sensex Index Drops Before Italian Vote, Central Bank’s Inflation Outlook

Most Indian stocks dropped, tracking Asian equities, before a parliamentary vote in Italy and as the nation’s central bank raised concern about inflation.

DLF Ltd. (DLFU), the nation’s largest developer, dropped for the first time in three days. Sun Pharmaceutical Industries Ltd., the biggest drugmaker by market value, declined the most in six weeks. State Bank of India, the largest lender, climbed ahead of its earnings tomorrow.

“Markets have remained range bound for quite some time and the environment around earnings and interest rates on the back of high inflation has remained very challenging,” Raamdeo Agrawal, joint managing director at Mumbai-based Motilal Oswal Financial Services Ltd., told Bloomberg UTV today.

The BSE India Sensitive Index, or Sensex, gained less than 0.1 percent to 17,569.53 in a session that saw the gauge swing between gains and losses at least 20 times. Sixteen shares fell and 13 advanced on the 30-member measure at the 3:30 p.m. close in Mumbai. The market was closed yesterday for a holiday.

The Sensex has slumped 14 percent this year on concern the record interest-rate increases may compound the effects of the European crisis on company profits. Companies in the Sensex are valued at 15 times future profits, down from 21.5 times in last March. The MSCI Emerging Markets Index trades at 10.5 times.

Inflation drivers are “still very strong,” Subir Gokarn, deputy governor at the Reserve Bank of India, said today.

Asian stocks dropped for a second day ahead of a vote in Italy that will show whether Prime Minister Silvio Berlusconi has enough support to stay in power and implement austerity measures amid a surge in the nation’s 10-year bond yield to a euro-era record 6.68 percent.

‘Euro Quake’

“There’s going to be more tremors and we face the risk of a euro quake,” said Christopher Wood, the Hong Kong-based chief equity strategist at CLSA Asia-Pacific Markets. “We’re in the process of reaching an end game in the euro zone, and Italy is just one actor in that whole drama,” he said in a Bloomberg Television interview from San Francisco.

The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. added 0.1 percent.

DLF dropped 2 percent to 242.75 rupees. Sun Pharmaceutical declined 2.7 percent to 499.4 rupees, its steepest loss since Sept. 22.

State Bank of India (SBIN) climbed 1.6 percent to 1,997.3 rupees. The lender may report tomorrow a 1 percent increase in net income to 25.2 billion rupees ($510 million), according to the median estimate of 33 analysts surveyed by Bloomberg News. The stock plunged 20.5 percent in the three months ended Sept. 30, the biggest quarterly loss in more than two years.

Oil & Natural Gas Corp., the nation’s biggest state energy explorer, rose 0.4 percent to 277.8 rupees after posting record earnings. The stock earlier surged as much as 4.2 percent. Net income soared 60 percent to 86.4 billion rupees ($1.8 billion) in the September quarter because of higher prices. The profit beat the median estimate of 64.9 billion rupees in a survey of 31 analysts and was the highest since at least December 1999.

Earnings Scorecard

Five out of 17, or 29 percent, of Sensex companies that posted earnings for the September quarter have lagged behind analyst estimates, compared with 47 percent in the three months ended June, according to Bloomberg data.

“This quarter’s results have been better than our expectations,” said Motilal’s Agrawal. “The real worry is inflation and interest rates.”

Chances that the Reserve Bank will raise borrowing costs at the next review on Dec. 16 are “relatively low,” it said on Oct. 25. The bank raised the repurchase rate to 8.5 percent from 8.25 percent on Oct. 25 to combat inflation that’s stayed at more than 9 percent since December.

Industrial production data for September will be released Nov. 11 and wholesale-price inflation for October on Nov. 14.

Overseas funds bought a net 779 million rupees of Indian stocks on Nov. 3, raising total investment in the equities this year to 21.7 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.

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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