Indian stocks fell, extending a four-week loss, as a gain in oil prices spurred concern the government will find it difficult to curb the fiscal deficit.
State Bank of India, the nation’s largest lender, dropped to a two-week low, pacing decline among its peers. Bharat Heavy Electricals Ltd. (BHEL), biggest power-equipment maker, retreated for a third day. Tata Consultancy Services Ltd. (TCS), the country’s top software exporter, sank 4.1 percent.
The BSE India Sensitive Index (SENSEX), or Sensex, slid 1.1 percent to 17,273.37 at the close, taking its three-day decline to 3.6 percent. Finance Minister Pranab Mukherjee missed his deficit target by the most in three years. The gap in finances in the year ending March 31 will be 5.9 percent of GDP, exceeding the goal set last year, he said in his speech on March 16. Oil rose the most in more than three weeks that same day, raising costs for the nation that relies on imported crude to meet almost 80 percent of its oil requirements.
“Global oil prices are the single most important variable for India,” Prashant Jain, the chief investment officer at HDFC Asset Management Co., the nation’s biggest money manager with $18 billion, told Bloomberg UTV. “The U.S. or European growth rates don’t matter much to us.”
Mukherjee forecast a narrowing in the fiscal gap to 5.1 percent in the year from April 1. Aside from raising taxes, he proposed capping a subsidy program spanning diesel and cooking gas to fertilizers to less than 2 percent of GDP, beginning in the year to March 2013. Higher crude prices deepen losses for state refiners, which sell fuels below cost under a government plan to cap prices.
“The government has been too aggressive on the subsidy assumptions; they seem to be too low,” Manishi Raychaudhuri, head of Indian equity research at BNP Paribas SA, said in an interview with Bloomberg UTV today. “If you add up potential subsidies the government may have to pay on oil, fertilizers and fuel, that alone would amount to a 50-basis point slippage on the fiscal-deficit target.”
Higher government spending has added to the struggle to curb inflation, prompting the central bank to call for better deficit control to boost scope for interest-rate cuts. Growth slowed to 6.1 percent last quarter from a year ago, the slowest pace in three years, as costlier credit hurt consumer spending and dented investment. Funding costs have been raised record 13 times from March 2010 to October last year to curb inflation.
“Interest rates will come down over time but the extent of the fall will be determined by how we tackle the diesel and petrol prices,” HDFC Asset’s Jain said. “Fuel subsidy should be close to zero because bulk of the fuel is consumed by people who are well off.” Diesel costs haven’t been raised since July.
The Sensex has still risen 12 percent this year as foreign funds poured a net $8.8 billion into local stocks on optimism slowing inflation will spur the RBI to ease monetary policy. Emerging-market stock funds are enjoying their best start to a year since 2006 in terms of inflows, according to data by EPFR Global. Funds focused on developing nation stocks posted a net inflow of $453 million for the week ended March 14, the 11th straight weekly increase, the data show.
“The world is awash with liquidity and India has received a significant share relative to other emerging markets,” BNP’s Raychaudhuri said. “We could receive a slightly smaller share in relation to other emerging markets in coming months, causing Indian equities to underperform.”
The Sensex trades at a price-to-book ratio of 2.8, less than the 10-year average of 3.3, according to Bloomberg data.
The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India slid 1.1 percent to 5,257.05. India VIX, which measures the cost of protection against declines in the Nifty, fell 0.7 percent to 22.97. The BSE 200 Index (BSE200) lost 1.2 percent.
The BSE and NSE traded a combined 1,305 million shares on March 16, 43 percent more than the daily average of 914 million shares in the past year, data compiled by Bloomberg show.
State Bank dropped 3.2 percent to 2,157.55 rupees. HDFC Bank Ltd., (HDFCB) the third-biggest lender, lost 1.8 percent to 498.85 rupees. Housing Development Finance Corp. (HDFC), the biggest mortgage lender, sank 2.4 percent to 650.25 rupees.
Bharat Heavy plunged 4.9 percent to 260.15 rupees. Tata Power Co. (TPWR), the biggest generator outside state control, slid 2.8 percent to 102.6 rupees.
Tata Consultancy sank 4.1 percent to 1,122 rupees. Reliance Industries Ltd. (RIL), owner of the world’s largest refining complex, lost 2.2 percent to 755.1 rupees, its lowest since Jan. 17.
Overseas investors bought a net 9.2 billion rupees ($182.6 million) of Indian stocks on March 16, raising their investment in equities this year to 436.5 billion rupees, according to the market regulator.
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