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India’s Sensex Drops Most in Two Weeks on Rate Cut Concerns

Indian stocks fell the most in two weeks on speculation faster inflation will limit the extent to which the central bank may ease monetary policy next week.

The S&P BSE Sensex dropped 1 percent to 19,362.55 at the close, its steepest slide since Feb. 28. Volumes on the gauge were 13 percent less than the 30-day average. Tata Motors Ltd. lost 1.2 percent after Jaguar Land Rover sales in China dropped 22 percent last month. Infosys Ltd., India’s second-largest software exporter, had the sharpest fall in three months and ICICI Bank Ltd. tumbled 3.3 percent.

Consumer-price inflation climbed 10.9 percent in February from a year earlier, compared with 10.79 percent in January, data showed yesterday. Another report tomorrow may show that wholesale prices rose 6.6 percent last month, compared with 6.62 percent in January, according to a Bloomberg survey. Reserve Bank of India Governor Duvvuri Subbarao said last month inflation risks will affect how much he can cut borrowing costs.

A cut in borrowing costs “may not happen and hopes are going down on that side,” Prateek Agrawal, chief investment officer at ASK Investment Managers Pvt., which has 16 billion rupees ($295 million) under management and advisory, said in an interview to Bloomberg TV India today.

Tata Motors retreated 1.2 percent to 301 rupees. Sales of Jaguar Land Rover dropped 22 percent last month in China, its biggest market. Maruti Suzuki India Ltd., the biggest carmaker, plunged 3 percent to 1,374.25 rupees, its fourth day of decline.

‘Negative Numbers’

Local carmakers are bracing for the first industrywide annual sales decline, with local deliveries having fallen 4.6 percent to 1.71 million units in the 11 months through February, data from the producers’ group show.

“Things are slowing down and auto sales have started to reflect the mood of the population,” ASK’s Agrawal said. “After a long period of time we’re looking at negative numbers from the two-wheeler and automobiles space.”

ICICI Bank fell 3.3 percent to 1,085.7 rupees, its third day of decline. Housing Development Finance Corp., the biggest mortgage lender, dropped 1.8 percent to 809.2 rupees. All 14 lenders on the S&P BSE Bankex retreated. The measure slid 2.2 percent, the most since Feb. 28.

Infosys slid 1.9 percent to 2,863.45 rupees. Aluminum maker Hindalco Industries Ltd. sank 3.7 percent to 95.8 rupees.

The central bank, which last reduced the repurchase rate by 25 basis points in January, will review policy on March 19. Consumer-price inflation running at more than 10 percent for a third straight month in February has diminished prospects of the wholesale price index remaining below 7 percent last month, Tim Condon, chief Asian economist at ING Groep NV in Singapore, said in a report dated today.

‘Downside Risk’

“The data point to downside risk to the consensus forecast of a cumulative 50 basis points of policy rate cuts by yearend,” he said.

The S&P CNX Nifty Index of the National Stock Exchange of India slid 1.1 percent to 5,851.20. India VIX, which measures the cost of protection against losses in the Nifty, surged 7.1 percent to 16.20.

The Sensex slumped 5.2 percent in February, its biggest monthly fall since May, as earnings at 43 percent of the index companies missed estimates in the three months through Dec. 31, compared with 40 percent in the previous two quarters, data compiled by Bloomberg show. India’s economy grew 4.5 percent from a year ago in the final three months of 2012, the weakest pace in almost four years, government data showed on Feb. 28.

The Sensex is valued at 13.6 times projected 12-month profits, compared with 14.3 times on Jan. 25, when the gauge climbed to a two-year high, data compiled by Bloomberg show. That compares with the MSCI Emerging Markets Index’s 10.7 times.

Foreigners still bought a net $144 million worth of shares on March 11, taking their net investment in local equities this year to $9.3 billion, a record for the period, data compiled by Bloomberg show. They bought a net $24.5 billion worth of shares last year, the most among 10 Asian markets tracked by Bloomberg.

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