Indian stocks dropped the most in almost two weeks after data showed inflation quickened faster than estimated in May and as a downgrade in Spain and Cyprus’ credit ratings threatened to deepen Europe’s debt crisis.
Tata Motors Ltd., the owner of Jaguar Land Rover luxury brands, sank 4.5 percent. Wholesale prices rose 7.55 percent, after rising 7.23 percent in April, the government said today. The median of 37 estimates in a Bloomberg News survey was for a 7.5 percent gain. Larsen & Toubro Ltd., the largest engineering company, tumbled 3.9 percent, the most since May 4.
The BSE India Sensitive Index, or Sensex, slid 1.2 percent to 16,677.88 at close in Mumbai, the most since June 1. Asian and European stocks fell. The MSCI Asia Pacific Index and the Stoxx Europe 600 Index each lost 0.5 percent as of 4:13 p.m. local time after Moody’s Investors Service cut Spain’s rating by three steps late yesterday, citing increased debt burden and weakening economy and limited access to capital markets.
“While inflation exceeded expectations, weakness in global markets is also keeping investors jittery,” Sandip Sabharwal, head of portfolio management services at Prabhudas Lilladher in Mumbai, said by phone.
Moody’s also lowered Cyprus’s bond rating to Ba3 from Ba1, attributing the downgrade to the increased likelihood of Greece leaving the euro area. The country’s government may have to give more support to Cypriot banks as a consequence.
Policy makers globally are being pressed into action to boost the global economy that is suffering its worst slowdown since the recession ended in 2009. On the heels of a June 5 interest-rate cut by Australia, China two days later unveiled its first reduction in borrowing costs in more than three years.
India’s economic expansion in the first quarter was the weakest in almost a decade as a policy paralysis in the ruling coalition undermined Prime Minister Manmohan Singh’s efforts to revitalize the economy and the debt crisis in Europe, India’s top trading partner, crimped exports.
Data earlier this week showed India’s factory production expanded less than analysts estimated in April, adding to the case for a cut in interest rates. The Reserve Bank of India may lower its key rate to 7.75 percent from 8 percent on June 18, according to 17 of 23 economists surveyed by Bloomberg. Two expect a cut to 7.5 percent, while the rest predict no change.
“Growth numbers are overshadowing inflation data and in a scenario where government policy isn’t spurring expansion, the RBI has to take steps to boost growth,” said Sabharwal.
The Sensex rallied 4.7 percent last week, its best weekly advance this year, amid speculation of monetary easing. The gauge has climbed 7.9 percent this year and trades at 13.1 times estimated earnings, near the lowest in more than three years. The MSCI Emerging Markets Index trades at 9.9 times.
Businesses sensitive to interest rates led losses on the Sensex. Tata Motors paced declines among automakers, sinking 4.5 percent to 226.70 rupees, its biggest drop in two weeks. Maruti Suzuki India Ltd., the nation’s biggest carmaker, slumped 2.5 percent to 1,080.10 rupees.
Larsen tumbled 3.9 percent to 1,296.90 rupees, ending a two-day advance. Bharat Heavy Electricals Ltd., the largest power-equipment maker, lost 1.7 percent to 217.45 rupees. ICICI Bank Ltd., the second-largest lender, plunged 3.6 percent to 818.85 rupees while larger rival State Bank of India declined 3.4 percent to 2,150.25 rupees, the most since May 22.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, jumped 5.5 percent to 25.71. The Nifty fell 1.3 percent to 5,054.75 while its June futures settled at 5,054.10. The BSE-200 Index lost 1.3 percent to 2,044.78. Combined trading volume on India’s top two exchanges was 810.99 million shares yesterday, compared with a 12-month daily average of 906.87 million.
Overseas investors were net buyers of local shares for a sixth straight day on June 13, purchasing a net $49 million of stocks and taking their total investment this year to $8.56 billion, data from the regulator show. They had cut holdings by $273 million in May, a second straight month of net sales.