India’s benchmark stock index dropped, capping its second-worst yearly loss as the debt crisis in Europe and the biggest series of interest-rate increases on record hurt corporate earnings and curbed growth.
Reliance Industries Ltd., the owner of the world’s largest refining complex, plunged to its lowest level since March 2009. Hindalco Industries Ltd., an aluminum producer that controls U.S.-based Novelis Inc., lost 1.2 percent, extending the year’s drop to 53 percent, making it the worst performer on the benchmark gauge.
The BSE India Sensitive Index, or Sensex, fell 0.6 percent to 15,454.92 at the 3:30 p.m. close in Mumbai. The gauge has slumped 25 percent in 2011 on concern a weakening rupee, accelerating inflation and interest-rate increases would compound the effects of the European crisis on corporate profits. Foreign investors have pulled out $380 million from the nation’s equities this year, compared with a record inflow of $29 billion last year.
“The Indian market has suffered from a number of negative headwinds,” Robert John Parker, a senior adviser at Credit Suisse Asset Management, said in an interview with Bloomberg UTV today. “The level of inflation has stayed elevated and that has prevented any monetary easing by the Reserve bank of India.”
Earnings forecasts for Sensex companies for the year ending in March 2012 have fallen 8.7 percent to 1,150 rupees per share, the biggest drop since the 12 months ended March 2009, according to about 1,500 estimates compiled by Bloomberg.
The Sensex lost 4.2 percent this month, its first drop in any December since 2001. The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. lost 0.5 percent to 4,624.30, while the BSE 200 Index fell 0.4 percent.
Reliance Industries sank 2.7 percent to 692.95 rupees, extending this year’s slide to 35 percent and losing its status as India’s most valuable company to software provider Tata Consultancy Services Ltd. Hindalco shed 1.2 percent to 115.85 rupees.
DLF Ltd., the biggest developer, fell 1.9 percent to 183.1 rupees. Tata Steel Ltd., the biggest producer of the alloy, also declined 1.9 percent, to 335.35 rupees, its lowest level since May 2009.
The 30-stock Sensex trades at 13.5 times estimated profits, down from 21.5 times in March 2010. The MSCI Emerging Markets Index is valued at 10 times after dropping 21 percent this year.
With inflation at more than 9 percent for the past 12 months, the Reserve Bank of India increased its benchmark interest rate 375 basis points to 8.5 percent in 13 moves since March 2010.
Higher borrowing costs slowed expansion in India’s $1.7 trillion economy, Asia’s third-largest, to 6.9 percent in the three months to September, the slowest growth in more than two years. Industrial production fell 5.1 percent in October from a year earlier, the first decline since 2009, according to statistics office data on Dec. 12.
Finance Minister Pranab Mukherjee is seeking ways to narrow the budget deficit, having raised just 3 percent of a 400 billion-rupee asset-sale target for the year ending March 31. The budget shortfall in the seven months through October was 74.4 percent of the annual goal, according to the Controller General of Accounts. Revenue collections were 45.5 percent of the full-year target compared with 65.5 percent of the annual target in the same period last year.
India’s current-account deficit may have widened to a record in the three months ended Sept. 30, a central-bank report may show today. The deficit reached an unprecedented $17 billion, according to the median estimate of nine economists surveyed by Bloomberg. That compares with $14.1 billion in the previous quarter.
Shrinking that gap “will not be easy” as a cooling economy curbs tax collections and a slump in stocks stalls plans to sell stakes in state-run companies, the finance ministry said this month.
Overseas borrowing by Indian companies slumped to the lowest level since June 2010 this quarter, according to data compiled by Bloomberg, as an economic slowdown and rising costs to fund in dollars threaten the nation’s $1 trillion plan to build roads and ports.
Parliamentary gridlock, high inflation, a widening budget deficit and slowing economic growth have sent the rupee tumbling 16 percent this year, making it the worst-performing currency in Asia, hurting Indian companies that have a record $11.4 billion of dollar bonds to repay in 2012. The debt coming due next year is double the five-year average of $5.6 billion, data compiled by Bloomberg show.
A weak rupee also boosts import prices in a country that imports 80 percent of its fuel. The currency lost 0.5 percent to 53.3 per dollar at 3:41 p.m. in Mumbai.
“Currency weakness reflects the fact that capital is not coming into the Indian market,” Credit Suisse’s Parker said. “I am not looking for a great first quarter.”