Indian stocks sank to a four-month low as the rupee weakened to a record amid concern the European debt crisis will cool demand for emerging-market assets.
Tata Motors Ltd., the Indian owner of Jaguar Land Rover, fell the most in about 15 months after the company’s luxury car unit reported the lowest sales in nine months. Infosys Ltd., the second-largest software exporter that gets 21 percent of its sales from Europe, dropped for the first time in three days. The rupee touched an all-time low of 54.5225 a dollar.
The BSE India Sensitive Index, or Sensex, retreated 1.8 percent, to 16,030.09 at close, its lowest level since Jan. 9. All but two members of the gauge fell and seven stocks tumbled more than 3 percent each. Greece will hold fresh elections as President Karolos Papoulias failed to form a ruling coalition, threatening 240 billion euros ($306 billion) in bailouts and prompting concerns the crisis may be worsening in Europe, India’s largest trading partner.
“We are in an environment that’s likely to be bumpy,” Ridham Desai, India managing director at Morgan Stanley, told Bloomberg UTV today. European “policy makers are likely to follow a path of gradual deleveraging. This process will have its fits and starts. It will produce pain at various points of time and sluggish growth. Europe will keep generating negative news flow for us.”
Concern India’s outlook has worsened because of trade and fiscal deficits, policy gridlock, elevated consumer prices and faltering global growth has pressured the rupee. The currency weakened 1.3 percent to 54.4950 at close, and has fallen 6.6 percent this quarter, Asia’s worst performance.
“Market pressures are pushing the rupee lower, considering the global risk-averse environment we have now,” said Ravi Ranjit, chief manager at Federal Bank Ltd. in Mumbai. “The Reserve Bank of India seems to be intervening and I think we will see regulatory measures to support the rupee.”
The Sensex has retreated 13 percent from a Feb. 21 high, exceeding the 10 percent drop that signals a correction to some investors. The gauge trades at 12.5 times future earnings and the 50-stock S&P CNX Nifty Index of the National Stock Exchange is valued at 12 times, the lowest reading in more than three years, data compiled by Bloomberg show.
“Nifty is close to its bottom-quartile valuation, and if you go back in time you made money in three out of the four occasions” when the gauge was that cheap, Morgan Stanley’s Desai said. “The market is considerably more circumspect than what the situation warrants and therefore I see upside risk to equities. Volatility is something that you will have to live with. If you have a 12-18 month time frame, you will probably end up making money.” Indian equities may return 20 percent in the next 12 months, he said.
Foreigners poured $8.8 billion into domestic stocks on optimism the Reserve Bank of India would ease monetary policy after record increases in funding costs slowed economic growth in the year ended March to the least in three years. The bank reduced rates in April for the first time since 2009 and said inflation risks may reduce scope for further reductions.
Asian equities and commodities dropped and the yen fell on concern the European crisis may be worsening. The MSCI Asia Pacific Index plunged 2.6 percent, its sixth day of loss. The S&P GSCI Index of 24 raw materials dropped 1.2 percent to its lowest since December, with gold tumbling into a bear market and oil falling to a six-month low in New York.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, surged 6.4 percent to 23.71. The Nifty Index declined 1.7 percent to 4,858.25. The BSE-200 Index dropped 1.5 percent to 1,981.23. A total of 772 million shares traded on the BSE and NSE yesterday, 15 percent less than the 12-month daily average.
Tata Motors lost 6.8 percent to 270.55 rupees, the most since since Feb. 24, 2011. Jaguar Land Rover sales fell 31 percent in April from March, the steepest monthly loss since at least November 2009. Today’s decline pared the stock’s rally this year to 51 percent, still the best performer on the Sensex.
“The stock has risen on the Jaguar Land Rover story,” said Shivani Kadam, an analyst at India Nivesh Securities in Mumbai. “Any negative news on sales will trigger a correction in price.”
Maruti Suzuki India Ltd., the biggest carmaker, shed 2.1 percent to 1,192.1 rupees. Infosys fell 1.9 percent to 2,368.45 rupees. Hindalco Industries Ltd., the aluminum maker that controls U.S.-based Novelis Inc., lost 3.5 percent to 110.3 rupees. Tata Steel Ltd., the biggest producer, plunged 4.2 percent to 400.6 rupees.
Overseas investors sold a net 1.36 billion rupees ($25 million) of Indian stocks yesterday, paring their investment in equities this year to 437 billion rupees, according to the nation’s market regulator.