Indian Stocks Fall as Government Cuts GDP Estimate Before Policy

Indian (SENSEX) stocks dropped for the sixth time in seven days as the government slashed the nation’s economic growth estimate before the central bank’s policy meeting tomorrow.

The BSE India Sensitive Index, or Sensex, fell 0.4 percent to 19,244.42 at the close in Mumbai. Volumes in the 30-stock measure exceeded the 30-day average by 17 percent, Bloomberg data show. Housing Development Finance Corp. (HDFC) and HDFC Bank Ltd. (HDFCB) fell more than 1.5 percent each. Tata Consultancy Services Ltd. (TCS) and Bharti Airtel Ltd. dropped at least 3 percent each.

Asia’s third-largest economy may expand about 5.7 percent to 5.9 percent in the year through March, less than an earlier estimate of as much as 7.85 percent, the Finance Ministry said in a mid-year review today. That would be the slowest pace in a decade and matches the 5.8 percent estimate made by the central bank in October. The monetary authority may keep a key interest rate unchanged at a review tomorrow, though it may reduce the reserve ratio for lenders, according to a Bloomberg survey.

“The central bank may like to see one or two more data points before loosening policy,” Kaushik Dani, a fund manager at Peerless Mutual Fund, which has $886 million in assets, said by phone from Mumbai. “No one is hoping for an interest-rate cut tomorrow.”

The Reserve Bank of India has so far resisted calls from Finance Minister Palaniappan Chidambaram for lower borrowing costs, opting to keep the repurchase rate at 8 percent to damp inflation in October while cutting the reserve ratio. To boost confidence in an economy with one of Asia’s worst performing currencies this year, Prime Minister Manmohan Singh in recent months pushed through policy overhauls to allow more foreign investment in aviation and retail, and curbed energy subsidies.

Inflation Woes

Conflicting inflation indicators last week caused investor expectations on interest rates to fluctuate. An acceleration in a consumer-price index helped drag the Sensex to a two-week low on Dec. 13, while an unexpected drop in a wholesale-price index caused the stock gauge to climb the most in a week on Dec. 14.

Borrowing costs have remained unchanged since a 50 basis- point cut in April. Inflation has risen to a high level, Prime Minister Manmohan Singh said in New Delhi on Dec. 15.

The government won parliamentary support in the first week of December on foreign investment in supermarkets. The cabinet approved last week changes to a law governing purchases of land for industry and highways, while Environment Minister Jayanthi Natarajan said the government has set up a panel to speed up approvals of infrastructure projects.

Sensex Rally

The Sensex has risen 25 percent this year, headed for its biggest annual advance since 2009, as the government’s policy announcements attracted foreign investors. Overseas funds were net buyers of local stocks for a 21st straight day on Dec. 13, taking net purchases in 2012 to $22.2 billion, the most among 10 Asian markets tracked by Bloomberg, excluding China, data compiled by Bloomberg show.

The Sensex’s advance this year drove its valuation to 16.4 times reported profit on Dec. 6, the highest since February. The measure trades at 15.2 times compared with a multiple of 12 for the MSCI Emerging Markets Index. The 30-day volatility in the gauge was at 10, compared with the year’s lowest reading of 9.06 set on Nov. 26, the data show.

The S&P CNX Nifty Index (NIFTY) on the National Stock Exchange of India lost 0.4 percent to 5,857.90. India VIX, which measures the cost of protection against losses in the Nifty, jumped 4.9 percent to 14.92.

Housing Development Finance shed 1.8 percent to 836.85 rupees. HDFC Bank also dropped 1.8 percent to 676.5 rupees. Tata Consultancy Services slumped 3 percent to 1,205.5 rupees. Wipro Ltd. (WPRO), the third-biggest software services provider, retreated 1.5 percent to 370.2 rupees. Bharti Airtel Ltd. (BHARTI) plunged 3.8 percent to 300.55 rupees.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

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

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