Indian stocks dropped, reversing an earlier advance, after the country’s central bank unexpectedly left interest rates unchanged.
State Bank of India, the nation’s biggest lender, sank 3.3 percent, erasing an intraday gain of 2.2 percent. Tata Power Co. (TPWR), the largest non-state-owned generator, fell 2.5 percent. The BSE India Sensitive Index (SENSEX) slid 1.2 percent to 16,753.73 at 12:21 p.m. in Mumbai. The 30-stock gauge had risen as much as 0.9 percent before the Reserve Bank of India’s announcement.
Governor Duvvuri Subbarao left the key repurchase rate at 8 percent, a stance that contrasts with rate cuts in Australia and China in the past two weeks as the impact of Europe’s debt crisis fans through Asia and dominates the agenda of a Group of 20 summit starting in Mexico today. Subbarao’s room to counter the weakest Indian growth in almost a decade is being limited in part by a plunge in the rupee, which has stoked an inflation rate already above 7 percent.
“This is a shocker,” said D.K. Aggarwal, who manages about $100 million of local assets as chairman at SMC Wealth Management Ltd. in New Delhi. “A rate cut was a must because the growth was slowing. The confidence has taken a beating.”
Only four of 25 economists in a Bloomberg survey predicted the RBI’s decision, with 19 expecting a 0.25 percentage-point cut and the remainder a half-point reduction.
Growth concerns have pushed down the Sensex 9 percent from this year’s high set on Feb. 21. Prime Minister Manmohan Singh is grappling with an economy hobbled by record trade and budget deficits, corruption scandals and infighting in the coalition that has stymied his efforts to lure more foreign investment.
Gross domestic product climbed 5.3 percent in the quarter ended March from a year ago, the least since 2003, imperiling the prime minister’s goal of 9 percent annual gains to reduce poverty. Standard & Poor’s has warned it may cut the country’s credit rating to so-called junk status.
“While growth in 2011-2012 has moderated significantly, headline inflation remains above levels consistent with sustainable growth,” the RBI said today.
Inflation accelerated to 7.55 percent in May, the fastest pace in the BRIC group of largest emerging markets that also includes Brazil, Russia and China. The government’s projected fiscal deficit of 5.1 percent of GDP in the year through March 2013 is the group’s widest.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, sank 8.6 percent to 23.34. The Nifty shed 1.1 percent to 5,083.65 while its June futures traded at 5,075. The BSE-200 Index (BSE200) fell 1 percent to 2,053.08. Combined trading volume on India’s top two exchanges was 694 million shares on June 15, compared with a 12-month daily average of 908 million.
State Bank plunged 3.3 percent to 2,110.1 rupees. ICICI Bank Ltd. (ICICIBC), the country’s second-biggest lender, tumbled 2.8 percent to 822.2 rupees. The 14-member BSE India Bankex Index retreated 2.7 percent, erasing an intraday gain of 1.3 percent.
Maruti Suzuki India Ltd. (MSIL), the biggest carmaker, retreated 1.6 percent to 1,089.6 rupees. Larsen & Toubro Ltd. (LT), the largest engineering company, decreased 1.3 percent to 1,306.8 rupees. Tata Power sank 2.5 percent to 91.3 rupees. Sterlite Industries (India) Ltd. (STLT), the largest copper and zinc maker, decreased 1.3 percent to 98.65 rupees.
Overseas investors were net buyers of local shares for a seventh straight day on June 14, purchasing a net $16 million of stocks and taking total investment in 2012 to $8.6 billion, data from the regulator show. They cut holdings by $273 million in May, a second consecutive month of net sales.
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