Indian Stocks Drop to 1-Month Low as Manufacturing Growth Slows

Indian stocks fell to their lowest level in a month after data showed manufacturing expanded at the slowest pace in nine months in August and as the political standoff between the government and the opposition continued.

Jindal Steel & Power Ltd. (JSP), the third-largest producer by market value, slumped to the lowest level in more than three years. The purchasing managers’ index slid to 52.8 from 52.9 in July, HSBC Holdings Plc and Markit Economics said today. A number above 50 indicates growth. Tata Power Co. (TPWR), the biggest non-state electricity generator, lost 2 percent.

The BSE India Sensitive Index (SENSEX), or Sensex, slid 0.3 percent to 17,384.40 at close, the lowest level since Aug. 3. The gauge lost 2 percent last week, its first weekly decline in five. The Bharatiya Janata Party, the main opposition party, stalled parliament for a ninth day, demanding Prime Minister Manmohan Singh to quit after the nation’s chief auditor on Aug. 17 found the government may have lost $33 billion awarding coalfields without holding auctions.

“The economy is faced with multiple challenges,” Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai, said by telephone today. Still, “the move on GAAR is rational and could pave the way for more equity inflows and also for FDI money into India.”

The Sensex has increased 13 percent this year as foreign funds have pumped in $12.3 billion into Indian stocks. Overseas investors sold a net $26.3 million of equities on Aug. 31, the first sale after 23 straight days of purchases, data from the market regulator show.

The Sensex trades at 13.7 times estimated earnings, more than the 10.8 multiple for the MSCI Emerging Markets Index (MXEF), which has risen 3.9 percent in 2012.

Parliament Stalled

The standoff has stalled legislation. Singh was relying upon the parliamentary session to revive his reforms agenda and boost economic growth as policy gridlock over attempts to open up the economy, graft scandals and elevated inflation deter investment.

India last year halted a plan to allow Wal-Mart Stores Inc. and other foreign companies to open supermarkets, while an anti- corruption bill and proposals to permit foreign investment in aviation are also stalled. The $1.8 trillion economy, Asia’s third largest, expanded 6.5 percent in the year ended March 31, the slowest pace since 2003. Growth may be a “little better” than last year, Singh said Aug. 15.

Stocks fell today even as a draft report released on Sept. 1 by a government panel suggested delaying the implementation of the General Anti-Avoidance Rule by three years. Foreigners turned net sellers of Indian stocks in April and May on concern the plan, announced by former finance minister Pranab Mukherjee in March, would indiscriminately apply to their holdings.

India VIX

Jindal Steel slumped 2.2 percent to 344.50 rupees, its lowest close since May 26, 2009. Tata Power lost 2 percent to 97.55 rupees and Tata Motors Ltd. (TTMT), owner of British luxury car brands Jaguar and Land Rover, declined 1.5 percent to 230.9 rupees, the lowest level in three weeks.

Two-wheeler makers rallied. Hero MotoCorp Ltd. (HMCL), which tumbled 8.9 percent last week, jumped 2 percent to 1,798.95 rupees. Bajaj Auto Ltd. (BJAUT) climbed 2.8 percent to 1,662.50 rupees after losing 5.5 percent last week.

India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, slid 0.1 percent to 17.28. The Nifty fell 0.1 percent to 5,253.75 while its September futures traded at 5,273.10. The BSE-200 Index (BSE200) lost 0.3 percent to 2,118.46. The top two bourses traded 787 million shares on Aug. 31, compared with a 12-month daily average of 888 million shares.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net;

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net.

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