Sensex Falls 10% From High as Banks Extend Drop

Photographer: Dhiraj Singh/Bloomberg

The Reserve Bank of India since mid-July has raised the marginal standing facility and bank rates, capped cash injections into the banking system and tightened lenders' daily reserve requirements to curb the supply of rupees, seeking to shore up the currency's value. Close

The Reserve Bank of India since mid-July has raised the marginal standing facility and... Read More

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Photographer: Dhiraj Singh/Bloomberg

The Reserve Bank of India since mid-July has raised the marginal standing facility and bank rates, capped cash injections into the banking system and tightened lenders' daily reserve requirements to curb the supply of rupees, seeking to shore up the currency's value.

Indian (SENSEX) stocks declined, taking the benchmark index’s drop from its 2013 high to almost 10 percent, amid concern that policy makers will sacrifice economic growth as they seek to stem a record slide in the rupee.

State Bank of India lost 2.6 percent and ICICI Bank Ltd. (ICICIBC) slumped 5 percent. The 13-member S&P BSE Bankex tumbled 3.4 percent, taking its two-day loss to 8.8 percent, the most since February 2009. Tractor maker Mahindra & Mahindra Ltd. (MM) dropped to the lowest level since September. Ranbaxy Laboratories Ltd. rose for the first time in three days amid speculation a weak currency will boost the value of its repatriated earnings. The rupee weakened to an unprecedented 63.23 per dollar today.

The S&P BSE Sensex slid 1.6 percent to 18,307.52 at the close, poised for a so-called correction after retreating 9.8 percent from this year’s high on July 23. Indian equities have posted four weeks of losses on concern that government efforts to support the rupee will weigh on the nation’s economy, which grew at the slowest pace in a decade in the year ended March. Prime Minister Manmohan Singh said over the weekend that the nation needs “fresh thinking” on economic policies.

“It’s a doom and gloom scenario out there,” Sajiv Dhawan, managing director of brokerage JV Capital Services, told Bloomberg TV India today. “The currency is weakening and there’s panic at the moment. Whatever the government or the RBI says is not creating any calm or stability.”

SBI, Mahindra

State Bank dropped 40 rupees to 1,530.5 rupees, the lowest close since May 2009. ICICI Bank plunged 43.25 rupees to 815.35 rupees. Axis Bank Ltd. (AXSB) sank 5.8 percent to 988 rupees, taking its two-day decline to 14 percent, the most since January 2009. Yes Bank Ltd. plunged 6.5 percent to 241.5 rupees, taking this year’s loss to 48 percent. Bank of Baroda plunged 6 percent.

Mahindra & Mahindra lost 3.6 percent to 810.25 rupees. The S&P BSE Capital Goods Index dropped its lowest close since April 2009. Ranbaxy, which gets 78 percent of its sales from abroad, added 0.1 percent.

The Sensex’s 4 percent plunge on Aug. 16 underscored the failure of months of measures to curb outflows, from higher interest rates to gold import curbs. Foreigners sold a net $3 billion of stocks and bonds in July as slowing growth made the economy vulnerable to a pullout of funds from emerging markets, spurred by speculation the Fed will cool stimulus.

“The rupee needs to settle down and only then we will see a resumption of funds on a sustainable basis,” Dhawan said.

Curbing Liquidity

The rupee sank 2.3 percent to 63.13 at the close, the most since Sept. 22, 2011, amid speculation a strengthening U.S. economy will prompt policy makers to pare the $85 billion of monthly bond purchases as soon as next month.

The Reserve Bank of India since mid-July has tightened money supply to steady the currency. It targeted outflows on Aug. 14, cutting the amount local companies can invest abroad without approval to 100 percent of their net worth from 400 percent, and saying residents can remit $75,000 each financial year compared with a previous limit of $200,000.

India’s economy may expand 5.5 percent in the year ending March 2014, compared with 5 percent in the previous 12-month period, the RBI estimates. That trails the 10-year average of about 8 percent as well as the performance of neighbors from Indonesia to the Philippines.

About 47 percent of Sensex companies that posted earnings for the June quarter missed analyst estimates. That compares with 27 percent for the March quarter, and 43 percent in the three months ended December, data compiled by Bloomberg show.

The Sensex has decreased 5.8 percent this year and trades at 13 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 10.1 times.

The CNX Nifty (NIFTY) Index on the National Stock Exchange tumbled 1.7 percent to 5,414.75, its lowest close since Sept. 11. India VIX, which gauges the cost of protection against losses in the Nifty, surged 8.3 percent, extending its 26 percent rise on Aug. 16. Volume on the Sensex was 43 percent higher than the 30-day average.

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

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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