March 22 (Bloomberg) -- Indian stocks tumbled the most in Asia after manufacturing contracted in China and Europe, the South Asian nation’s biggest trading partner, and as the rupee weakened to a two-month low.
Reliance Industries Ltd., the nation’s largest company, sank the most in three weeks. Bharti Airtel Ltd., the biggest cell-phone operator, slid 2.7 percent. State Bank of India, the biggest lender, lost 3.2 percent. The rupee weakened past 51 a dollar for the first time since Jan. 17.
The BSE India Sensitive Index, or Sensex, sank 2.3 percent to 17,196.47 at the close. European manufacturing fell to 47.7 as factory output unexpectedly shrank in Germany and France, according to Markit Economics. A preliminary measure of Chinese manufacturing slid to 48.1 in March, a four-month low, based on data from HSBC Holdings Plc and Markit Economics. The Stoxx Europe 600 Index retreated 1 percent at 6:23 p.m. in Mumbai and the MSCI Emerging Markets Index dropped 0.4 percent.
“I don’t think the fall has got anything do with India specific; it’s a global selloff,” Saurabh Mukherjea, director of institutional equities at Ambit Capital Pvt. in Mumbai, told Bloomberg UTV today. “The last couple of weeks haven’t been good for India. Neither the budget nor the state elections have worked out the way the markets would have liked. In that context, a growth scare from China isn’t the best news for us.”
Foreigners have purchased a net $9 billion of shares this year, fueling the 11 percent rally in the Sensex, on optimism slowing inflation will spur the central bank to ease monetary policy. The flows have outweighed concerns about a slowdown in company profits, high oil prices and a widening fiscal deficit.
The Reserve Bank of India left the benchmark interest rate unchanged on March 15 after a record 13 increases between March 2010 and October last year. The wholesale-price index climbed 6.95 percent in February, after rising 6.55 percent in January.
A weakening rupee raises the cost of imported oil and raw materials, fueling consumer prices and reducing the RBI’s scope to reduce rates. The rupee dropped the most in more then three months on speculation the slump in the nation’s equities will spur fund outflows.
“The signal that we have been sending since October is that the cycle has peaked but we have also been cognizant of new risks that have emerged, particularly in the last few weeks,” Deputy Governor Subir Gokarn said in an interview with Bloomberg Television in Hong Kong. “We can’t lose sight of the overall inflation scenario.”
Borrowing costs at the highest level since 2008 to fight price rises, policy gridlock and the worst investment slump in almost three years contributed to a slowdown in growth to 6.1 percent last quarter, the weakest since 2009.
“The market will be driven by global liquidity as the fundamentals of the Indian economy, politics and corporate earnings are very negative,” Anil Singhvi, chairman of Ican Investment Advisors, told Bloomberg UTV. “The first quarter of 2012 will perhaps be the best for the year. We’re going to have a tough time in the next three quarters.”
The S&P CNX Nifty Index on the National Stock Exchange of India lost 2.5 percent to 5,228.45. India VIX, which measures the cost of protection against losses in the Nifty, surged 18 percent to 24.77, the most in six months. The VIX closed at a five-month low yesterday.
A combined 1,086 million shares changed hands on the BSE and NSE yesterday, 18 percent more than the daily average in the past year, data compiled by Bloomberg show.
Reliance, owner of the world’s largest refining complex, plunged 4.1 percent to 736.35 rupees, the lowest level since Jan. 16. Bharti lost 2.7 percent to 323.9 rupees, extending this year’s loss to 5.7 percent. State Bank plunged 3.2 percent to 2,160.6 rupees. ICICI Bank Ltd., the second-biggest lender, dropped 3.7 percent to 899.65 rupees.
Foreign funds purchased a net 6.52 billion rupees ($129 million) of local equities yesterday, raising total investment this year to 446.9 billion rupees, according to the regulator.
Funds focused on developing nation stocks took in a net $453 million for the week ended March 14, the 11th straight weekly gain, according to data by EPFR Global.
“We don’t expect liquidity to dry up easily and in that case India would be a beneficiary,” Rakesh Arora, head of research at Macquarie Capital Securities (India) Pvt., told Bloomberg UTV. “Even if some investors remain underweight in India, there will be still some inflows coming in” as part of flows into emerging markets equities, he said.
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