Indian stocks tumbled the most in Asia, tracking global equities, amid concern the European debt crisis will not be contained and as the outlook for the nation’s company earnings dimmed amid high borrowing costs.
The BSE India Sensitive Index, or Sensex, sank 1.9 percent to 16,461.71 at the 3:30 p.m. close in Mumbai, the most in Asia and the gauge’s biggest decline in almost two months. A spurt in the Spanish and French borrowing costs sparked a sell-off in local equities in the last hour of trade.
“Spanish bonds spooked the markets,” Saurabh Mukherjea, the Mumbai-based director of institutional equities at Ambit Capital Pvt., told Bloomberg UTV. “A 10 percent downside in India by Christmas is becoming more likely unless there is a clear statement from the European Central Bank on how it can stem the decline in the bond markets.”
Global stocks fell for a fourth day. The MSCI All-Country World Index lost 0.7 percent at 7 a.m. in New York. The Stoxx Europe 600 Index slid 1.8 percent. The 10-year Spanish yield rose 34 basis points to 6.75 percent, a euro-era record, with similar-maturity French yields jumping to 2 percentage points more than benchmark German bonds. The cost of insuring against default on European government debt approached a record.
The Sensex has slumped 20 percent this year on concern the central bank’s record interest-rate increases may compound the effects of Europe’s crisis on company profits. Indian equities may fall further as investors shun risk assets amid the global economic turmoil, according to Franklin Templeton Investments.
“There is a possibility of a sharp correction over the short term,” K.N. Sivasubramanian, chief investment officer of Franklin Equity India, wrote in an e-mail dated Nov. 15. “Any spike in risk aversion could impact capital flows into India. Market direction will be influenced by earnings and policy newsflow along with global developments, especially Europe.”
India’s central bank last month forecast the economy will grow 7.6 percent in the year ending March 31, lower than the 8 percent it estimated previously, as tight monetary policy and Europe’s debt crisis cools demand. Moody’s Investors Service said yesterday that public debt is obstructing an increased credit rating for India, where 10-year government bond yields have risen the most in Asia amid higher rates to tame inflation that has stayed above 9 percent since November last year.
“In India, growth has slowed down much more than anyone would have imagined,” Nandita Agarwal Parker, general partner at Karma Capital Management LLC., told Bloomberg UTV today. “The excessive tightening by the Reserve Bank of India and the deterioration of the European situation were unexpected.”
Twelve out of 30, or 40 percent, of Sensex companies have reported earnings that trailed analysts’ estimates in the three months ended September, compared with 47 percent in the quarter ended June and 33 percent in March, Bloomberg data show.
“Trends on top line and profitability were largely similar to last quarter, with revenues continuing to grow at a strong pace but margins being under pressure due to higher input and borrowing costs,” Franklin’s Sivasubramanian said.
The S&P CNX Nifty Index on the National Stock Exchange dropped 1.9 percent to 4,934.75. Its November futures settled at 4,925.30. The BSE 200 Index slid 1.9 percent.
Reliance sank 4.5 percent to 809.95 rupees, its steepest decline since Sept. 22. Maruti plunged 4.5 percent to 947.15 rupees, extending this year’s loss to 33 percent. Tata Motors Ltd. (TTMT), the largest truckmaker, sank 3.9 percent to 175.2 rupees, its lowest price since Oct. 10. Bharat Heavy Electricals Ltd. (BHEL), the biggest power-equipment maker, retreated 4.5 percent to 284.85 rupees. Jaiprakash Associates Ltd. (JPA), a builder of dams, roads and bridges, tumbled 6.4 percent to 62.65 rupees, extending this year’s slide to 41 percent.
India’s rupee traded at its lowest level in more than 2 1/2 years, extending its year-to-date fall to 12.2 percent, the most among Asia’s 10 most-traded currencies. The country buys more than 75 percent of its fuel needs from overseas, and imports raw materials including steel, coal and natural rubber. A weaker rupee raises the cost of overseas purchases.
The central bank may intervene to “smoothen” the rupee’s volatility, Reserve Bank Deputy Governor Subir Gokarn said in an interview to CNBC-TV18 television channel today.
Foreign funds sold a net 4.62 billion rupees ($91 million) of Indian stocks yesterday, paring their investment in equities this year to 29 billion rupees, the market regulator said. They were net buyers for 12 days through Nov. 14, the data show.
“As retail investors in the western world redeem their money, foreign institutional investors are having to pull out of stocks left, right and center,” Ambit’s Mukherjea said.
This year’s drop in the Sensex has narrowed the measure’s valuation to 14.5 times future profits from 21.5 times in March 2010. The MSCI Emerging Markets Index trades at 10.4 times.
“Indian valuations are below long-term averages and look attractive vis-a-vis long-term fundamentals,” Sivasubramanian said. “While there have been outflows in 2011, the cumulative foreign institutional investors flow over the last five years have been $54.2 billion and their ownership of local stocks has risen. India will continue to be an attractive investment destination. In the short term, we may see fluctuations based on liquidity trends and risk appetite.”
Flows from abroad reached a record $29.4 billion in 2010 as the nation’s economic growth lured overseas funds, making the Sensex the best performer among the world’s top 10 markets.
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