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Indian Stocks Drop to Lowest in Four Months; SBI, Larsen Decline

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March 25 (Bloomberg) -- Indian stocks fell to a four-month low after a party that supports Prime Minister Manmohan Singh’s coalition government said it will prefer elections in October, spurring concerns polls may be held before schedule.

The S&P BSE Sensex index lost 0.3 percent to 18,681.42, the lowest level since Nov. 26, at the close in Mumbai. The measure’s 30-day volatility index was 13.6, near the highest level since October before the expiry of the monthly derivatives contract this week. The Nifty Index of the National Stock Exchange of India Ltd. declined 0.3 percent to 5,633.85 and its March futures settled at 5,645.05. State Bank of India, the nation’s biggest lender, fell 1.2 percent, after climbing 2 percent earlier.

“It’s the fragility of the government and the fear of elections that’s causing this nervousness among traders and investors,” Sadanand Shetty, a senior fund manager at Taurus Asset Management Co., said in a phone interview from Mumbai today. “The government is trying to put up a brave face by continuing with the reforms.”

The Sensex slumped 3.6 percent last week, the steepest decline since the five days ended Dec. 16, 2011, as the lower house of parliament was adjourned for a third day amid accusations Prime Minister Singh’s administration worked with the Sri Lankan government to “water down” a United Nations Human Rights Council resolution on alleged wartime atrocities on the island nation.

The Dravida Munnetra Kazhagam party withdrew from India’s ruling coalition on March 19 over the issue, leaving Singh’s alliance 44 seats short of a majority.

Samajwadi Party

Akhilesh Yadav, son of Samajwadi Party chief Mulayam Singh Yadav, in an interview aired by Aaj Tak television channel yesterday said his party is ready to face elections anytime and that it would be ideal for his party if parliamentary polls were held in October. Akhilesh is the chief minister of the country’s most-populous state of Uttar Pradesh and his party provides support to Singh’s government.

The Sensex rose 1.2 percent intraday amid optimism the government will continue steps to boost growth and after Cyprus agreed to an international bailout.

India on March 23 said it will ease investment rules for foreign funds buying government and corporate bonds, lessening concerns Singh’s reform agenda may be undermined by the exit of the coalition’s ally. The MSCI Asia Pacific Index climbed 0.9 percent after Cyprus agreed to the outlines of an international bailout, moving the country toward eliminating the threat of default and an exit from the euro.

‘Typical Volatility’

“This is typical volatility before the expiry,” Arun Kejriwal, director at Mumbai-based Kejriwal Research & Investment Services, said by phone. “There is no fundamental reason to justify the swing.”

Derivative contracts expire on March 28 and Indian markets are closed on March 27 and March 29 for public holidays. India VIX, which measures the cost of protection against losses in the Nifty, soared 5.3 percent to 16.36, after falling 4 percent.

State Bank of India retreated 1.2 percent to 2,058.25 rupees. ICICI Bank Ltd., the country’s second-biggest lender, fell 1.5 percent to 1,012.6 rupees.

Larsen & Toubro Ltd. tumbled 2.3 percent to 1,366.45 rupees. Tata Steel Ltd., the biggest producer of the alloy, also declined 2.3 percent to 314.4 rupees.

The Sensex has retreated 3.8 percent this year amid the weakest economic growth in a decade, the highest inflation among major emerging markets and as more company earnings missed estimates in the three months ended Dec. 31 compared with the previous quarter. The gauge trades at 12.6 times projected 12-month profits, compared with the MSCI Emerging Markets Index’s 10.5 times.

Overseas funds bought a net $37.5 million of Indian stocks on March 22, according to data from the market regulator. That boosted net purchases this year to $9.9 billion, a record for the period, according to data compiled by Bloomberg.

To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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