Indian stocks dropped, mirroring losses in Asia, on concerns a slowdown in China and the debt crisis in Europe will curb growth and hurt overseas investor demand for the nation’s equities.
State Bank of India, the nation’s largest lender, slumped 2.6 percent. The MSCI Asia Pacific Index fell for a third day and headed for a one-month low as China car sales unexpectedly shrank for the first time in eight months while Alcoa Inc. said slowing Chinese growth will reduce global demand for aluminum. Bharat Heavy Electricals Ltd. retreated 2 percent.
The BSE India Sensitive Index, or Sensex, slid 0.9 percent to 18,631.1, its lowest close since Sept. 27. The International Monetary Fund said European lenders may need to sell as much as $4.5 trillion in assets through 2013 if policymakers fall short of pledges to stem the crisis, up 18 percent from its April estimate. The European Union is India’s top trading partner, making up 17.2 percent of exports in the six months ended September 2011, according to the commerce ministry.
“Global risks to growth still exist and that has implications for capital flows into emerging markets,” Ajay Bodke, head of investment strategy & advisory at Mumbai-based brokerage Prabhudas Lilladher Pvt., said by phone. “We’ve seen a very sharp rise in Indian markets and there’s got to be some consolidation.”
Prime Minister Manmohan Singh cut fuel subsidies, opened retailing and airlines to foreigners and reduced a tax on local companies’ overseas borrowings in a wave of policy making since last month after two years of gridlock. The steps propelled the Sensex 7.7 percent last month, its biggest monthly gain since January this year.
The 30-stock gauge has increased 21 percent this year as foreigners bought a net $17.5 billion of local stocks, the most among 10 Asian markets tracked by Bloomberg, excluding China. The gauge trades at 14.8 times estimated earnings, compared with a multiple of 11.4 times for the MSCI Emerging Markets Index.
India may lose its investment-grade credit rating within the next 24 months if economic growth slows and political opposition to policy overhauls increases, Standard and Poor’s analysts Takahira Ogawa and Elena Okorochenko said in a report received today, reiterating comments made in April when S&P lowered the outlook on the nation’s rating to negative.
The country faces at least a one-in-three possibility of a downgrade, the analysts said. It is is rated BBB- by S&P, one level above junk and the lowest in the BRIC group, which also includes Brazil, Russia and China. India’s economic growth may weaken to a decade-low of 4.9 percent in 2012 even as Singh pursues the revamp, forecasts from the International Monetary Fund showed yesterday.
11 Straight Days
Overseas funds were net buyers of Indian equities for an 11th straight day on Oct. 8, data from the market regulator show. India’s $1.3 trillion market is influenced by flows from overseas. The Sensex was the best performer among the world’s top 10 markets in 2010 when the nation took in a record $29 billion. The gauge sank 52 percent in 2008, its biggest annual slump, when withdrawals reached an all-time high.
“Given how sensitive Indian equity markets are to foreign inflows, the call on the market now seems to have become a call on flows, and that’s dangerous as no one really knows the color or timeline of these flows,” Rahul Arora, chief executive officer of Nirmal Bang Institutional Equities, wrote in an e-mail yesterday. “The subdued outlook on Europe is capable of derailing the train.”
The Nifty index retreated 0.9 percent to 5,652.15 while its October futures traded at 5,675. The BSE-200 Index fell 1 percent to 2,294.34. The top two exchanges traded 1 billion shares yesterday, compared with a 12-month daily average of 905 million shares.
Indian companies will this week start reporting earnings for the quarter ended Sept. 30. Earnings for 40 percent of the 30 Sensex companies missed estimates in the three months ended June, compared with 30 percent in the three months ended March and 47 percent three months earlier, data compiled by Bloomberg.
Infosys Ltd., the second-largest software exporter, will announce its second-quarter results on Oct. 12. The stock fell 1.3 percent to 2,504.15 rupees. Power-equipment maker Bharat Heavy lost 2 percent to 245.15 rupees, its lowest level since Sept. 21. State Bank slumped 2.6 percent to 2,223.55 rupees, its lowest close since Sept. 25, and HDFC Bank Ltd., India’s second-largest private lender, slid 1.3 percent to 617.95 rupees, the lowest close in three weeks.
Aluminum producer Hindalco Industries Ltd. dropped 2.2 percent to 116 rupees, a third straight day of losses after Citigroup Inc. this week cut its rating on the stock. Tata Power Co., India’s biggest private generator, retreated 2.3 percent to 100.10 rupees, the lowest level since Sept. 20.
Emkay Global Financial Services Ltd., the Indian brokerage responsible for the trading error that caused shares to plunge last week, rebounded after it was allowed to resume operations. The stock rallied 5.2 percent to 26.50 rupees after slumping 27 percent since Oct. 5, its biggest three-day loss in more than six years.