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India Stocks in U.S. Approach Five-Month Low on Inflation, Oil

Feb. 24 (Bloomberg) -- India’s stocks trading in the U.S. approached the lowest level since September as surging oil prices stoked concern inflation will accelerate while the country’s record trade deficit will widen further.

The Bank of New York Mellon India ADR Index, which tracks the country’s American depositary receipts, declined 1.2 percent, almost twice the average of emerging markets, to 1,180.85 at 3:40 p.m. New York time. It was within three points of its lowest close since Sept. 8. Tata Motors Ltd., the nation’s biggest truckmaker, sank 2.8 percent to $24. ICICI Bank Ltd., India’s second-biggest lender, tumbled 2.3 percent to $42.98.

Oil has surged 13 percent this week and touched the highest in 29 months in New York earlier today before retreating as Libya’s violent uprising cut supplies from Africa’s third-biggest producer. India, which imports almost 75 percent of its oil consumption, reported today that food inflation accelerated for the first time in three weeks.

“India gets punished disproportionately more than most emerging-market countries with high oil prices because of the heavy import ratios,” said Vikas Pershad, the Chicago-based chief executive officer of Veda Investments LLC, which owns Indian ADRs including Tata Motors Ltd. and ICICI Bank Ltd. “We’ll see flows out of Indian equities as long as turmoil in the Middle East continues.”

India’s domestic benchmark Sensex index slid 3 percent today to 17,632.41 in Mumbai, the biggest drop since Nov. 3, 2009. The index has lost 14 percent this year, making it the world’s third-worst performer after Egypt and Tunisia. Emerging markets stocks dropped 0.7 percent today, extending their decline to 5.5 percent this year, according to the MSCI Emerging Markets Index.

Stock Outflows

Overseas investors have pulled a net 66.1 billion rupees ($1.5 billion) out of Indian equities this year as inflation quickened to the fastest pace in six years, according to data on the website of the Securities and Exchange Board of India. The stock market in Asia’s third-largest economy attracted a record 1.33 trillion rupees in 2010, helping lift the benchmark index 17 percent and making it the best performer among the world’s 10 biggest equity markets.

Tata Motor’s domestic shares tumbled 7.8 percent today, the most in 22 months. Its ADRs have lost 17.9 percent this year. ICICI Bank fell 5.4 percent in Mumbai today, pushing its decline this year to 17 percent. Its ADRs have fallen 15 percent this year.

The Bank of New York’s ADR index fell as much as 2.3 percent earlier today after crude oil for April delivery touched $103.41 a barrel, the highest intraday price since Sept. 29, 2008 on the New York Mercantile Exchange.

Rupee Weakens

The ADRS recouped some losses as oil started to retreat, falling 0.8 percent to settle at $97.28, after the U.S., Saudi Arabia and the International Energy Agency said they can compensate for any disruption of Libyan shipments. Opponents of Libyan leader Muammar Qaddafi are consolidating control over the oil-rich east while he clamped down on Tripoli, witnesses said.

Inflation is picking up in India, where the World Bank estimates more than three-quarters of the people live on less than $2 a day. An index of wholesale farm-product prices rose 11.49 percent in the week ended Feb. 12 from a year earlier, after climbing 11.05 percent the previous week, the commerce ministry said today.

India’s rupee dropped 0.8 percent, the most in a month, to 45.475 per dollar. The rupee-denominated bonds due in 2022 declined for a second day, pushing yields up three basis points to 8.13 percent.

‘Broadly Negative’

“The sentiment broadly is negative, especially taking the global scenario into account,” Chandresh Nigam, head of investments at Axis Asset Management Co., with $1.1 billion in assets, said in a phone interview. “There could be some nervousness as well as some money movement away from risky assets in this environment.”

The “challenge” faced by India’s central bank is to curb inflation without hurting economic growth that is essential to lift living standards, Governor Duvvuri Subbarao said in a speech in the eastern state of Orissa.

Subbarao last month increased interest rates for the seventh time since March to curb inflation that he expects to accelerate to 7 percent by March 31. The central bank is aiming for an inflation rate of 4 percent to 4.5 percent. The bank urged the government to cut subsidies in its budget due Feb. 28 to curb consumer demand.

Budget

“Investors would like to watch in the budget how the finance minister manages the fiscal and current account deficit and sustains the pace of growth,” said Amit Nigam, a fund manager in Mumbai at BNP Paribas Asset Management India Pvt., which manages $1 billion in assets.

The stocks’ tumble has driven down the value of companies within the Sensex index to an average 16.6 times estimated earnings from last year’s high of about 21.5 times in March, according to data compiled by Bloomberg. The average ratio for developing countries’ stocks is 13.5, according to the MSCI Emerging Markets Index.

“If you keep the event-risk aside, we believe valuations are becoming attractive for a patient long-term investor,” said Navneet Munot, chief investment officer at Mumbai-based SBI Funds Management Pvt., a unit of India’s biggest lender, in an interview. “We will look to deploy more cash if there is another 5 percent to 7 percent correction in the markets.”

The declines provide “a good opportunity” for long-term investors to buy Indian banks “as the demand for consumer finance products remains robust and is growing,” said Pershad at Veda Investments.

Fuel Prices

Higher fuel prices push up food costs by boosting transport rates. That will worsen the “crazy jumble” of items including erratic weather patterns and underproduction of staple foods that are pushing up prices in developing Asia, Mark Matthews, a Singapore-based strategist at Macquarie Group Ltd., said in a Bloomberg Television interview yesterday.

Thousands of workers from across India marched toward the country’s parliament in New Delhi yesterday protesting rising food costs, low wages and job insecurity.

State Bank of India Ltd., the biggest lender, sank 3.4 percent to 2,528.65 rupees, its third day of declines. ICICI Bank Ltd. slumped 5.4 percent to 951.35 rupees, extending this year’s drop to 17 percent. Housing Development Finance Corp., the biggest mortgage lender, slipped 4.7 percent to 616.8 rupees, while March futures settled at 620 rupees.

Aurobindo Pharma Ltd. slumped 17 percent to 170.15 rupees, the most since October 2008, after U.S. regulators restricted imports from a facility supplying drugs to Pfizer Inc. The stock posted the biggest decline on the BSE 200 Index.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Camila Russo in New York at crusso15@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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