Indian stocks dropped the most in Asia, extending the longest weekly losing stretch since August, amid concern the government will find it difficult to rein in the fiscal deficit, and as the rupee weakened to a 10-week low.
Tata Consultancy Services Ltd., the country’s biggest software exporter, which gets more than 90 percent of its sales from abroad, fell 2 percent. Reliance Industries Ltd., owner of the world’s largest refining complex, lost 1.9 percent. ICICI Bank Ltd., the second-biggest lender, tumbled 4.2 percent.
The BSE India Sensitive Index, or Sensex, sank 1.8 percent to 17,052.78 at the close, the lowest level in two months. The government needs to take tough decisions in coming months and raise additional funds to fill a budget gap, Finance Minister Pranab Mukherjee said over the weekend. The monetary authority on March 15 indicated that measures to pare the deficit would boost its scope to cut interest rates, while flagging inflation risks from oil prices and a weaker rupee.
“A depreciating rupee will lead to higher inflation as we are a net importer, and higher inflation leads to a slowdown in the economy that makes managing the deficit very challenging,” Arun Khurana, a fund manager at UTI Asset Management Co., which has $11.3 billion in assets, said by phone from Mumbai. “These imbalances would keep interest rates in a higher trajectory. The likelihood of a rate cut looks remote, or it may be academic in nature, or 50 basis points for the whole year.”
Foreign funds have bought a net $9.1 billion of local shares this year, fueling the 10 percent advance in the Sensex, amid optimism slowing inflation will spur the central bank to ease monetary policy. The flows have come even as growth in Asia’s third-largest economy moderated to 6.1 percent last quarter from a year earlier, the slowest pace in almost three years, as costlier credit hurt consumer spending and dented investment.
The rupee fell as low as 51.4950 per dollar, the lowest level since Jan. 16, amid renewed concerns about Europe’s debt crisis and on speculation local importers will step up dollar purchases to meet payments before the March 31 fiscal year-end. The currency slid for a fifth day after Italian Prime Minister Mario Monti warned over the weekend that Spain could reignite Europe’s debt crisis, sapping demand for emerging-market assets. Europe is India’s third-largest trading partner, taking in a fifth of the nation’s merchandise exports.
The Sensex trades at 15 times future earnings, compared with 10.7 times on the MSCI Emerging Markets Index. Thirty-day volatility in the stock gauge was at 20.63 today, the highest in two months. India VIX, which measures the cost of protection against declines in the S&P CNX Nifty Index Nifty, jumped 15 percent to 26.74. The Nifty dropped 1.8 percent to 5,184.25 and its April futures settled at 5,235.40.
“The key breakout area for the Nifty was just above the 5,200 area,” Laurence Balanco, a technical analyst with CLSA Asia-Pacific Market, told Bloomberg UTV today. “We have seen the pullback from 5,700 to this 5,200. It is important that the market holds the 5,200 support. If it fails to hold that area it puts the Nifty back into a range between 4,700 and 5,200.”
The BSE 200 Index shed 1.8 percent. A total 904 million shares changed hands on the BSE and NSE on March 23, equivalent to the daily average in the past 12 months, according to data compiled by Bloomberg.
Tata Consultancy declined 2 percent to 1,161.6 rupees. Infosys Ltd. declined 1.5 percent to 2,830.75 rupees.
Reliance lost 1.9 percent to 730.1 rupees. ICICI sank 4.2 percent to 872.5 rupees. State Bank of India, the country’s biggest lender, decreased 2.3 percent to 2,117.45 rupees.
Overseas funds bought a net 3.3 billion rupees ($64.9 million) of Indian stocks on March 22 and March 23, raising their investment in the equities this year to 450.2 billion rupees, according to the nation’s market regulator.