Indian stocks fell for the second week after a key ally of the ruling coalition questioned the functioning of the government amid investors’ expectations of speedier economic reforms after Presidential polls.
Larsen & Toubro Ltd., the largest engineering company, dropped for the first time in three days. Lender ICICI Bank Ltd. retreated the most in a month. Maruti Suzuki India Ltd., the biggest carmaker, rebounded from its steepest decline in almost two years. The BSE India Sensitive Index retreated 0.7 percent to 17,158.44 at the close. The gauge fell 0.3 percent this week, its second straight week of losses.
The Nationalist Congress Party, an important ally of the Congress Party-led coalition, raised “serious issues” over the government’s functioning in a letter to Prime Minister Manmohan Singh, one of its leaders said today. Investors are expecting the government to announce steps to boost economic growth after presidential elections ended yesterday.
“Just when it looked like the government was getting serious about reforms we have this uncertainty,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd., said from Kochi. “Now, the government’s effort will go into fire-fighting rather than reforms. Plus the monsoon continues to be a worry and the company earnings are not encouraging.”
Singh, who took control of the finance ministry in June, has pledged to revive growth after expansion slowed to a near-decade low and revive an economic reforms agenda stymied by opposition from its own allies. The government last year halted a plan to allow Wal-Mart Stores Inc. and other foreign companies to open supermarkets, while an anti-corruption bill and proposals to allow foreign direct investment in aviation and pensions are also stalled.
Heavy Industries Minister Praful Patel told reporters in New Delhi today that his party leadership will meet July 23 to decide on its future action. Patel said the government needed to be more “decisive” in the buildup to elections in 2014.
Indian television stations, including the CNN-IBN network, had earlier reported that NCP ministers, including Agriculture Minister Sharad Pawar, had resigned from Singh’s cabinet.
Stocks also fell amid concerns the weakest monsoon rains since 2009 will curb agricultural output and jeopardize efforts to cool inflation. The monsoon, which accounts for more than 70 percent of annual rains, was 22 percent below a 50-year average since June 1, the nation’s weather bureau said yesterday.
The Sensex has still gained 11 percent this year, partly because of record purchases by overseas investors. They have invested a net $10.2 billion in local equities since Jan. 1, the highest in Asia and a record for the period.
The stock gauge trades at 13.4 times estimated earnings, compared with the MSCI Emerging Markets Index’s 10.2 times.
Four out of seven, or 57 percent, of companies on the Sensex that have reported June-quarter results have missed analyst estimates, according to data compiled by Bloomberg.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, surged 3.1 percent to 16.89, rebounding from its lowest level in almost two years. The Nifty lost 0.7 percent to 5,205.10. The BSE-200 Index decreased 0.5 percent. Combined volume on the nation’s top two bourses was 708 million shares yesterday, 22 percent less than the 12-month daily average of 903 million shares.
Larsen & Toubro declined 1.2 percent to 1,390.4 rupees. Bharat Heavy Electricals Ltd., the biggest power-equipment maker, tumbled 2.9 percent to 228.1 rupees.
ICICI Bank dropped 1.7 percent to 935.15 rupees. Infosys Ltd., the second-largest software services provider, slid 1.2 percent to 2,218.75 rupees.
Maruti Suzuki India Ltd., the biggest carmaker, rallied 2.7 percent to 1,147.5 rupees. The stock had plunged 8.9 percent yesterday after a person died and at least 70 managers were injured in a riot at its plant in Manesar near New Delhi.
Overseas investors bought domestic shares for a 14th day yesterday, the longest run of net purchases since February, data from the regulator show.