India’s benchmark stock index sank to a 25-month low after the central bank cautioned against risks to economic growth even as it refrained from raising borrowing costs for the first time in eight meetings.
Reliance Industries Ltd. (RIL), the country’s biggest company, dropped to more than a three-month low. Larsen & Toubro Ltd. (LT), the largest engineering company, slumped to a 2 1/2-year low. The economy is “clearly decelerating,” the Reserve Bank of India said, adding that inflation risks “remain high” and the “rupee remains under stress.”
The BSE India Sensitive Index (SENSEX), or Sensex, sank 2.2 percent to 15,491.35 at the 3.30 p.m. close in Mumbai, the lowest since Nov. 3, 2009. The gauge has sunk 24 percent this year, the most among the world’s largest equity markets, as 13 rate increases since last March and a drop in the rupee to a record low erode company earnings already threatened by Europe’s debt crisis.
“No measures were announced to enhance liquidity or to boost growth,” said Anita Gandhi, director at Arihant Capital Markets Ltd. (ACM) in Mumbai. “Also, no time line was given on when the RBI would start to cut interest rates. The policy guidance disappointed the street.”
Governor Duvvuri Subbarao paused after inflation slowed to a one-year low, industrial output fell for the first time in 28 months and the economy grew last quarter at the weakest pace in more than two years. Still, a “rate cut is an event some way ahead,” he told reporters in Mumbai, adding he won’t speculate when the central bank would begin easing its monetary policy.
The rupee, which has lost 15 percent this year, surged as much as 2.7 percent to 52.21 a dollar earlier today and traded at 52.78 at 4:34 p.m. The jump followed the central bank’s move to restrict rupee-forward trading yesterday after the currency dropped to an all-time low of 54.3050 per dollar. The yield on the 8.79 percent government note due November 2021 fell six basis points, or 0.06 percentage point, to 8.43 percent.
While Prime Minister Manmohan Singh, in an interview with Bloomberg News this week, said the economy will return to a 9 percent growth pace, analysts are slashing their forecasts for companies. Bank of America Corp., CLSA Asia-Pacific Markets and UTI Asset Management Co. say the downgrades will extend into the 2013 fiscal year. The Sensex may sink to 14,500 in the next six months, according to a Dec. 5 Bank of America report.
Earnings forecasts for Sensex companies for the year to March 2012 have fallen 7.9 percent to 1,160 rupees per share, the most since the year ended March 2009, according to about 1,500 estimates compiled by Bloomberg. Analysts cut outlooks for Maruti Suzuki India Ltd. (MSIL), the country’s biggest car-maker, and Tata Steel Ltd. (TATA), the largest producer of the alloy, by at least 29 percent, the data show.
“While domestic macros -- investment and consumption -- have been decelerating, the slowdown in global markets is impacting exports,” said Aneesh Srivastava, who oversees 23 billion rupees ($435 million) as chief investment officer at IDBI Federal Life Insurance Co. in Mumbai. “We don’t expect to see a runaway rally. Markets will watch the macro-economic environment and focus on news flowing out of global markets.”
While the benchmark wholesale-price inflation slowed to a one-year low of 9.11 percent in November, it is higher than in other BRIC nations. Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.
Overseas funds withdrew $787.1 million from local shares in November, the most since August, data from the regulator show. They have pulled out $353 million from stocks this year, compared with a record inflow of $29.4 billion last year, as Europe’s worsening debt crisis prompted investors to flee from assets perceived as risky.
The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India Ltd. tumbled 2 percent to 4,651.60. The BSE-200 Index lost 2 percent to 1,874.10, the lowest since August 2009.
As many as 28 of the 30 stocks on the Sensex slid, with industrials contributing the most to losses, followed by banks, data compiled by Bloomberg show.
Reliance tumbled 3.8 percent to 721.85 rupees, the lowest price since Aug. 26. Larsen & Toubro slumped 5.3 percent to 1,072.65 rupees, the lowest since May 2009.
ITC Ltd. (ITC) lost 1.9 percent to 195.8 rupees while Axis Bank Ltd. (AXSB) tumbled 4.8 percent to 904.05 rupees, the lowest since Nov. 3, 2009. ICICI Bank Ltd. (ICICIBC), the biggest private lender, fell 3.2 percent to 676 rupees. HDFC Bank Ltd. (HDFCB), the second-largest, lost 3.7 percent to 415.3 rupees.
Sterlite Industries (STLT) (India) Ltd., the biggest copper producer, slumped 4.5 percent to 89.2 rupees.
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