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India’s Sensex Drops, Ending Two-Day Gain; Lenders Retreat

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June 18 (Bloomberg) -- Indian stocks declined as the rupee weakened the most in a week before the Federal Reserve policy meeting, and as foreigners sold local shares.

The S&P BSE Sensex retreated 0.5 percent to 19,223.28 at the close in Mumbai, ending a two-day, 2.7 percent climb. State Bank of India lost 1.1 percent, ending four days of gains. Oil & Natural Gas Corp., the nation’s largest explorer, fell to a two-month low. Drugmaker Dr. Reddy’s Laboratories Ltd. slid to the lowest in two weeks.

India’s rupee weakened on concern the U.S. central bank will signal a reduction in the asset purchases that have helped increase flows to emerging markets. Foreigners sold a net $431 million of local shares last week, the most since November 2011 and the first week of reductions since April, data compiled by Bloomberg show. The Sensex has slid 4.2 percent since May 22, when Fed Chairman Ben S. Bernanke said the authority may taper the stimulus efforts if the world’s largest economy improves.

“All eyes are on the Fed meeting today as winding down of stimulus will restrict inflows from overseas,” Deven Choksey, managing director at K.R. Choksey Shares & Securities, said by phone from Mumbai.

Overseas funds have bought a net $14.9 billion of Indian shares so far this year, the highest after Japan among Asian markets tracked by Bloomberg, as easing by global central banks stoked demand for riskier assets. The inflows helped the Sensex climb to a two-year high on May 17.

State Bank lost 1.1 percent to 2,043.6 rupees, leading its peers lower. HDFC Bank Ltd., the nation’s most valuable lender, decreased 1.5 percent to 657.45 rupees. ICICI Bank Ltd. slid 1 percent to 1,090.95 rupees. The 14-member S&P BSE Bankex index dropped 1.2 percent, the most among 13 sector indexes compiled by the BSE Ltd. Mortgage lender Housing Development Finance Corp. lost 1.2 percent to 834 rupees.

ONGC, Bharti

Oil & Natural Gas slid 1.6 percent to 307.75 rupees, its lowest level since April 11. NTPC Ltd., India’s biggest power producer, tumbled 2.6 percent to 146.8 rupees. Bharti Airtel Ltd., the nation’s largest mobile-phone operator, decreased 1.4 percent to 291.95 rupees. Dr. Reddy’s lost 0.7 percent to 2,130.95 rupees.

A plunge in the rupee this month is threatening to stoke import costs in a country that purchases about 80 percent of its oil from abroad, fanning the second-highest inflation rate in the Group of 20 nations. The Reserve Bank of India yesterday left the repurchase rate unchanged for the first time in four reviews and said it would need proof of a “durable” cooling in inflation before lowering rates again.

The Sensex has lost 1.1 percent this year and trades at 13.2 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 9.8 times. The 50-day volatility on the Indian index climbed to 16.8, the highest since May 2012.

The 50-stock CNX Nifty index on the National Stock Exchange of India Ltd. decreased 0.6 percent to 5,813.60. Its June futures settled at 5,812. India VIX rose 0.6 percent.

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

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

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