Indian Stocks Drop, Rupee Gains as RBI Unexpectedly Raises Rates

India’s (SENSEX) benchmark stock index fell to a one-month low and the rupee climbed after the central bank unexpectedly increased its main interest rate to curb inflation and steady the currency.

Maruti Suzuki India Ltd. (MSIL) had the steepest decline in 18 months after posting profit that missed estimates. Axis Bank Ltd. (AXSB) slid to a two-month low, dragging down a gauge of lenders for a fourth day. Sun Pharmaceutical Industries Ltd. (SUNP) dropped the most since Nov. 21. The rupee rose from a two-month low.

The S&P BSE Sensex retreated 0.1 percent to 20,683.51, the lowest close since Dec. 17. The gauge erased an intraday gain of 0.4 percent after Reserve Bank of India Governor Raghuram Rajan raised the policy rate to 8 percent from 7.75 percent, a decision predicted by only three of 45 analysts in a Bloomberg survey. The Sensex plunged the most in five months yesterday amid a drop in emerging-market equities and currencies.

“I am astonished at the decision,” Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance Co., said by phone from Mumbai. “It seems like RBI’s decision is aimed at defending the currency.”

A RBI panel last week proposed adopting a 4 percent target for consumer-price gains by 2016, signaling a need for elevated borrowing costs to stem inflation that’s running close to 10 percent even as the economy struggles. Further tightening isn’t anticipated if retail inflation slows to 8 percent by March 2015, the central bank said. Consumer prices rose 9.87 percent in December, compared with a 11.2 percent gain in November.

‘Play Safe’

“The RBI is playing it safe with inflation and is making sure that the downward trajectory continues,” Shishir Bajpai, director, wealth advisory, at IIFL Wealth Management Pvt., said in a phone interview. IIFL is still betting on stocks most-tied to the economy because it expects borrowing costs to ease over the next 12 months, he said.

Maruti plunged 8 percent to 1,566 rupees. Net income at Suzuki Motor Corp.’s unit climbed 36 percent to 6.81 billion rupees ($108 million) in the December quarter, missing the 6.94 billion-rupee median of 39 analysts in a Bloomberg survey.

Ten out of 11 Sensex companies that have posted earnings for the December quarter so far have beaten or matched analyst estimates, according to data compiled by Bloomberg.

Axis Bank declined to the lowest level since Nov. 28, the worst performer on the S&P BSE India Bankex Index.

The rupee climbed 0.9 percent to 62.5150 per dollar. It fell as low as 63.3050 yesterday, the weakest since Nov. 14. The currency has declined about 14 percent in the past year, adding to price pressures by raising the cost of imports.

Global investors sold a net $208 million of local shares on Jan. 27, the biggest outflow since Aug. 27, data compiled by Bloomberg show. They invested $20 billion last year, the most in Asia after Japan. Net purchases in 2012 were $24.6 billion, the data show.

The CNX Nifty Index on the National Stock Exchange of India Ltd. fell 0.2 percent to 6,126.25. The Sensex has lost 2.3 percent this year. It climbed 9 percent in 2013, the best annual gain among the four largest emerging markets, and trades at 12.9 times projected 12-month earnings. The MSCI Emerging Markets Index is valued at 9.1 times.

To contact the reporters on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net; 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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