Indian stocks fell to a two-week low on concern an unprecedented levy on Cyprus’s bank savings will throw Europe back into crisis, reducing demand for riskier assets. A measure of volatility climbed to a four-month high.
The S&P BSE Sensex index slid 0.7 percent to 19,293.2, the lowest close since March 6, with volumes 27 percent less than the 30-day average. ICICI Bank Ltd., the nation’s third-biggest lender by value, retreated to the lowest level this month. Coal India Ltd. dropped to the lowest in more than a year.
Foreigners have bought a net $9.5 billion of local stocks this year, a record for the period, extending last year’s $24.5 billion of inflows, data compiled by Bloomberg show. The nation needs more than $75 billion of overseas capital this year and next to fund a record current-account deficit, Finance Minister Palaniappan Chidambaram said in a March 15 interview. About 4 percent, or $6.8 billion, of foreign investment to India in the 12 years to Dec. 31 came through Cyprus, government data show.
“A potential escalation of the European debt problem may lead to a lull in foreign inflows as global investors turn risk averse,” Nilesh Karani, assistant vice president of research at Magnum Equity Broking Ltd., said in a phone interview today.
While Cyprus accounts for less than half a percent of the 17-nation euro economy, the concern is that the one-time tax on accounts could trigger bank runs across Europe. India has tax treaties with nations including Cyprus to eliminate duplicate levies on goods and capital.
ICICI Bank fell 1.5 percent to 1,051.4 rupees, the lowest price since Feb. 28. Axis Bank Ltd. lost 1.1 percent to 1,325.1 rupees. Coal India lost 2.6 percent to 302.3 rupees, the lowest close since Dec. 30, 2011, after CNBC-TV18 reported March 15 the government plans to sell a 10 percent stake in the company.
Copper producer Sterlite Industries India Ltd. retreated 2.6 percent to 96.4 rupees. Tata Steel Ltd., the nation’s top producer of the alloy, declined 1.5 percent to 349.3 rupees. Reliance Industries Ltd., the owner of the world’s largest refining complex, dropped 1.1 percent to 834.3 rupees.
Chidambaram said the government may ease caps on foreign investment and called on the Reserve Bank of India to reduce interest rates, as he extends efforts to revive growth at a decade low. The review may herald a sweeping relaxation of the investment caps in two dozen industries, the nation’s biggest opening to overseas companies since the 1990s.
“Many caps can be removed or certainly relaxed,” and a review of the limits has begun, Chidambaram said. “We need to clear some of the cobwebs accumulated in India and go out and woo specific business houses.”
The central bank is due to review funding costs tomorrow. Governor Duvvuri Subbarao last week signaled the budget deficit was less of an obstacle to rate cuts, despite inflation that is “still high and stubborn.” Thirty of 35 economists surveyed by Bloomberg News are predicting a quarter-point reduction in the benchmark rate to 7.5 percent. The rest expect no change.
The Sensex trades at 13.1 times projected 12-month profits, compared with 14.3 times on Jan. 25, when the 30-stock measure climbed to a two-year high, data compiled by Bloomberg show. The MSCI Emerging Markets Index is valued at 10.5 times. The 30-day volatility in the Sensex was at 12.96, the highest since Oct. 29, the data show.
The S&P CNX Nifty Index fell 0.6 percent to 5,835.25. India VIX, which measures the cost of protection against losses in the Nifty, gained 4.6 percent to 15.85.