Indian stocks fell the most in a month after the country’s central bank signaled it may hold rates for a third time this year at its meeting next month.
The BSE India Sensitive Index (SENSEX), or Sensex, lost 0.8 percent to 17,490.81 at close. Tata Motors Ltd. (TTMT) slid to a two-week low. Reliance Industries Ltd. (RIL), owner of the world’s largest refining complex, retreated for the first time this week. Sterlite Industries (India) Ltd. (STLT) paced losses among metal producers.
Policy makers need to cut inflation by about 2 percentage points, Reserve Bank of India Governor Duvvuri Subbarao said yesterday, signaling the authority has limited scope to lower rates. The main opposition party has stalled parliament for six days asking Prime Minister Manmohan Singh to resign after the chief auditor on Aug. 17 found his administration may have lost $33 billion awarding coalfields without holding auctions. The government was relying upon the parliamentary session to end two years of policy gridlock to lift economic growth from the slowest pace in three years.
“We were very hopeful that reforms would get a leg up and that was a reason why we upgraded India to overweight from neutral in June,” Bharat Iyer, head of India research at brokerage JPMorgan Chase & Co., told Bloomberg TV India. “I am not questioning that hope, but like a lot of people, I am bit frustrated that we have not seen the kind of policy action that we would have liked.”
The parliament was closed today for a public holiday.
India’s price pressures, exacerbated by infrastructure bottlenecks and a sliding currency, have kept the RBI from cutting borrowing costs since April even as growth in Asia’s third-largest economy dropped to the second-slowest pace in at least seven years. The RBI next meets to set rates on Sept. 17.
“We need to bring it down to more acceptable levels of 5 percent or even less than 5 percent,” Reserve Bank of India Governor Duvvuri Subbarao said yesterday in a speech at Cornell University in Ithaca, New York. The benchmark wholesale-price index rose 6.87 percent in July from a year earlier.
BNP Paribas SA cut its rating on Indian stocks to neutral from overweight in a report yesterday on concerns that persistent inflation and policy deadlock will hurt growth until a new government is formed in 2014. Neutral is the equivalent of hold.
The Sensex has increased 13 percent this year, helped by the biggest overseas equity investments among 10 Asian markets tracked by Bloomberg. Foreign funds bought a net $30 million of stocks on yesterday, the 21st day of purchases, taking their investments this year to $11.8 billion, data from the regulator show. That’s the longest stretch of net buying since a record 41-day streak through Oct. 27, 2010, Bloomberg data show.
Jackson Hole Meeting
Asian equities climbed today as investors await Federal Reserve Chairman Ben S. Bernanke’s speech on monetary policy this week. The Federal Reserve signaled last week it’s ready to take more steps to spur the economy and Bernanke may comment on the likelihood of further measures in an Aug. 31 speech at a meeting of central bankers in Jackson Hole, Wyoming.
“Investors are closely watching the events at Jackson Hole for any hints of a QE3,” D.K. Aggarwal, chairman of SMC Investments & Advisors Ltd., which has about $100 million in assets, said from New Delhi. “If that happens we may see more funds flowing to India.”
The Sensex is valued at 13.7 times estimated earnings, compared with the MSCI Emerging Markets Index (MXEF)’s 10.8 times.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, rose 2.4 percent to 16.74. The Nifty index lost 0.9 percent to 5,287.80 and its August futures settled at 5,296.60. The BSE-200 Index decreased 0.8 percent to 2,128.02. India’s top two bourses traded 868 million shares yesterday, equivalent to the 12-month daily average.
Tata Motors drops 1.6 percent to 233.4 rupees. Hero Motocorp Ltd. (HMCL), the biggest motorcycle maker, tumbled 3.4 percent to 1,849.05 rupees. Bajaj Auto Ltd. (BJAUT), the second-largest motorcycle maker, plunged 3.9 percent to 1,624.85 rupees.
Reliance Industries lost 1 percent to 782.15 rupees. Oil & Natural Gas Corp. (ONGC), the largest state-owned oil explorer, decreased 2 percent to 275.45 rupees.
Sterlite Industries sank 4.6 percent to 99.45 rupees, extending yesterday’s 5.4 percent slide. Hindalco Industries Ltd. (HNDL), an aluminum producer, fell 2.7 percent to 103.8 rupees. Tata Steel Ltd. (TATA), the biggest producer of the alloy, lost 1 percent to 374.4 rupees.
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