Indian stocks fell the most in Asia as oil prices near a nine-month high sparked speculation energy costs will undermine the government’s efforts to curb inflation and lower interest rates.
Reliance Industries Ltd., the country’s largest company, declined the most in five months. ICICI Bank Ltd., the largest private lender, slumped to its lowest level in almost a month.
The BSE India Sensitive Index, or Sensex, fell 2.7 percent to 17,445.75 at the 3:30 p.m. close in Mumbai, the lowest level since Feb. 2. Oil climbed to $109.77 a barrel on Feb. 24, the highest close since May 3. Higher energy prices lift costs for companies in India, which imports three-quarters of its oil.
“The Reserve Bank may think twice before considering a rate cut if inflation spikes,” said Kishor Ostwal, managing director with CNI Research Ltd. in Mumbai. “Speculation that oil companies will raise gasoline prices weighed on sentiment.”
A gasoline price increase would end a three-month freeze by state refiners, which sell cooking gas, diesel and kerosene at below-market rates to keep fuels affordable. April-delivery oil fell 1.1 percent to $108.52 at 4:50 p.m. Mumbai time.
The Sensex advanced 16 percent this year before today as foreigners poured a net $5.6 billion into Indian equities even as company earnings growth slowed. The 30-company gauge had its first weekly loss in eight last week amid concern higher energy prices may stoke inflation and prevent the central bank from easing monetary policy. The RBI cut banks’ reserve ratios last month for the first time since 2009, is due to meet on March 15 for its next policy review.
“India is more dependent on global factors than any other major emerging market and oil prices are a key risk,” Arvind Sanger, managing partner at Geosphere Capital Management LLC., told Bloomberg UTV today. “An oil-price shock, even if it develops slowly, causes risk appetite to lessen.”
Profit growth of companies in the Sensex index fell to 4.3 percent in the final three months of 2011, trailing analysts’ estimates. Fourteen out of 30, or 47 percent, of companies in the Sensex posted December-quarter earnings that lagged behind analyst estimates, compared with 40 percent in the September quarter, amid higher funding costs and rising input costs.
The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. slid 2.7 percent to 5,281.20. The BSE Mid-Cap Index sank 3 percent to its lowest level since Feb. 7, while the BSE Small-Cap Index lost 3.3 percent, the most in eight months. The two indexes had surged 23 percent each this year before today.
“In the mid-cap segment, anything and everything rose on the back of the large caps in the past one month and that has broken down,” Amit Dalal, executive director of investments at Tata Investment Corp., told Bloomberg UTV today. “Midcaps may take time to come back.”
Sterlite Industries (India) Ltd. and Sesa Goa Ltd. fell after parent Vedanta Resources Plc said it will combine the units to cut the debt taken to fund the $8.67 billion purchase of Cairn India Ltd. Sterlite, the largest copper producer, fell 2.5 percent to 115.7 rupees. Sesa slumped 10.1 percent to 203.9 rupees, the most since Oct. 27, 2009. The acquisition pushed up the group’s total debt to $9.65 billion.
“There’s only one clear winner -- parent Vedanta -- as it gets free of the debt it took to buy Cairn India and fund the spending for unit Vedanta Aluminium,” said Niraj Shah , an analyst at Fortune Equity Brokers India Ltd. in Mumbai. “The merger is negative for Sesa and even for Sterlite.”
Larsen & Toubro Ltd., the nation’s biggest engineering company, declined 3.5 percent to 1,301.9 rupees, the lowest price since Jan. 23. Bharat Heavy Electricals Ltd., the biggest producer of power equipments, sank 4.7 percent to 289.5 rupees, the most since Jan. 30. Reliance dropped 4.8 percent to 781.2 rupees, the steepest decline since Sep. 22.
ICICI Bank slid 4.7 percent to 887.5 rupees, the lowest price since Jan. 30. State Bank of India dropped 3.8 percent to 2,122.9 rupees. The BSE Bankex Index slid for a fourth day, losing 4 percent to 11,589.3, its lowest level since Feb. 2.
License cancellation of several telecom companies to which Indian banks lent about $2 billion will raise asset quality concerns of Indian banks already facing difficulties of corporate borrowers in the broader telecom, power and airline sectors, Moody’s said in a note today.
Foreign funds bought a net $76.5 million of shares on Feb. 23, a 16th straight day of net purchases and the longest such run since October 2010.