India’s benchmark stock index sank to a 28-month low as overseas investors pared holdings of the nation’s equities on concern a falling rupee will compound the effects of slowing economic growth on corporate earnings.
Reliance Industries Ltd., India’s largest company, fell to a 33-month low. Larsen & Toubro Ltd., the biggest engineering company, slumped to the lowest level in more than 2 1/2 years. Foreign investors pulled out $363 million from local equities in seven days through yesterday, data from the regulator show.
The BSE India Sensitive Index, or Sensex, lost 1.3 percent to 15,175.08 as of the 3:30 p.m. close, the lowest since August 2009. The gauge has lost 26 percent this year, the most among major Asian markets, as record borrowing costs, high inflation and a weak rupee combined with Europe’s crisis to slow economic growth. Foreign funds have withdrawn $472 million this year, compared with a record inflow of $29.4 billion in 2010.
“Sustained selling by foreign investors, spurred by weak domestic economic fundamentals, is creating panic,” said Deven Choksey, managing director of K.R. Choksey Shares & Securities in Mumbai. “Rupee depreciation and expanding fiscal deficit will put earnings under pressure going forward.”
India’s finance ministry said in a Dec. 9 report that lower tax collections in a slowing economy and delayed plans to sell stakes in state companies may mean it may fail to meet its goal of narrowing the budget deficit to a four-year low of 4.6 percent of gross domestic product in the year ending March 31.
The economy may expand 7.25 percent to 7.75 percent in the fiscal year ending in March, less than the 9 percent estimated in February, the report showed. The economy grew 6.9 percent in the September quarter from a year ago, the least in two years, and factory output fell 5.1 percent in October from a year ago, the first contraction since 2009, as the highest borrowing costs in three years damped demand, government data show.
The cabinet approved the Food Security Bill on Dec. 18 to supply the nation’s poor food grains at discounted rates. The policy will inflate food subsidies by 320 billion rupees ($6 billion) to 950 billion rupees, according to the Food Ministry.
“Controlling fiscal deficit is a challenge due to high commodity prices including oil and some of the government’s social initiatives,” Alroy Lobo, chief strategist and global head of equities at Kotak Mahindra Asset Management Co., which has about $6.1 billion in assets, told Bloomberg UTV. “This will keep interest rates levels high in the economy.”
The rupee closed little changed at 52.89 per dollar from 52.885 yesterday after falling 0.4 percent intraday. It reached a record low of 54.3050 on Dec. 15. A weak rupee boosts prices in a country that buys 80 percent of its energy and increases repayment costs for companies holding foreign-currency debt.
“With the Reserve Bank of India hamstrung by stubbornly strong non-food core inflation, a violent sell-off down to the 11,000-12,000 levels on the Sensex, combined with a further depreciation in the rupee to the 60 a U.S. dollar level, now appears quite possible,” Christopher Wood, equity strategist at CLSA Asia-Pacific Markets, wrote in a note dated Dec. 18.
The Sensex trades at 13.2 times estimated earnings, down from 21.5 times in March 2010 and the lowest since April 2009. The MSCI Emerging Markets Index is valued at 10 times.
The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. lost 1.5 percent to 4,544.20. The BSE-200 Index fell 1.6 percent to 1,823.81, its lowest level since August 2009.
Shares of as many as 170 companies in the BSE-500 Index closed at their lowest level in at least 52 weeks. The measure tumbled to a 28-month low, data compiled by Bloomberg show.
Among Sensex companies, Reliance lost 3 percent to 713.45 rupees, the lowest price since March 20, 2009. Larsen & Toubro slumped 5.3 percent to 977.7 rupees, the lowest since May 15, 2009. Tata Motors Ltd., owner of Jaguar Land Rover, slid for a fourth time in five days, losing 2.7 percent to 174.9 rupees. Jaiprakash Associates Ltd., a builder of dams and bridges, sank 7.4 percent to 53.45 rupees, the lowest since March 30, 2009.
Tata Steel Ltd. dropped 5.7 percent to 342.75 rupees, the lowest since July 2009, and JSW Steel Ltd. lost 4.9 percent to 469.15 rupees, the lowest price since May 2009.
ITC Ltd., Asia’s second largest cigarette maker, rose for a second day, gaining 1 percent to 199.4 rupees. HDFC Bank Ltd., India’s second largest private lender, rose 2 percent to 414.2 rupees, ending four straight days of losses.