Indian stocks dropped the most in three weeks, led by consumer companies, on concerns tightening measures by the central bank will curb economic growth.
ITC Ltd., Asia’s second-biggest listed tobacco company, slid from a record after reporting the weakest profit growth in four years. Hindustan Unilever Ltd., India’s biggest household products maker, had the steepest fall in six months before its earnings tomorrow. Ambuja Cements Ltd. sank the most in five years after parent Holcim Ltd. asked the Indian company to pay $593 million to buy its stake in a subsidiary.
The S&P BSE Sensex plunged 1.4 percent to 19,804.76 at the close, the biggest drop since July 3. Stocks slid yesterday, led by lenders, after the central bank tightened banks’ access to cash on July 23 to steady the rupee, a week after raising two interest rates. Credit-ratings cuts may outpace upgrades as slow growth and higher funding costs weaken credit quality of companies, a unit of Standard & Poor’s said in a note today.
“The RBI’s measures are putting pressure on the markets, especially on lenders, and that pressure is now spreading to other sectors of the economy,” Kaushik Dani, a fund manager at Peerless Mutual Fund, which has about $769 million in assets, said by telephone from Mumbai. “The central bank’s moves are aimed at arresting the slide in the rupee. Confidence will only return when investors see the success of these measures.”
The rupee rose less than 0.1 percent to 59.1087 rupee per dollar at the close. The currency fell to a record 61.2125 on July 8. A weak rupee fans inflation by raising the cost of imported oil, limiting the central bank’s ability to cut borrowing costs to fight the weakest economic growth in a decade.
Corporate bond sales plunged 96 percent in July as yields surged to a one-year high after the central bank’s tightening measures. Borrowing costs for leading companies have climbed above 10 percent, data compiled by Bloomberg show. RBI Governor Duvvuri Subbarao maintained interest rates in June, citing persistent inflation risks, after cutting the key rate in each of the three previous meetings. The next review is on July 30.
“The RBI’s seeming determination to squeeze liquidity will almost certainly tighten financial conditions, slow credit growth and amplify the already substantial downside risks to the Indian economy,” Richard Iley, a chief economist at BNP Paribas SA, wrote in a note e-mailed today.
ITC plunged 4.5 percent to 358.9 rupees, the sharpest drop since May 13. The biggest company in the Sensex by weighting reported an 18 percent rise in first-quarter net income.
Hindustan Unilever tumbled 3 percent to 687.95 rupees, retreating for the second day from a record reached on July 23. The stock trades at 40 times estimated earnings, the highest valuation among the 30 companies in the Sensex.
Wipro Ltd., the third-biggest software maker, plunged 4.1 percent to 376.25 rupees. Sun Pharmaceutical Industries Ltd., the biggest drugmaker by value, dropped 2.8 percent to 1,095.3 rupees, retreating from a record reached yesterday. Bharat Heavy Electricals Ltd. slid 2.8 percent to 158.55 rupees, the lowest close since January 2006.
Ambuja Cements plunged 11 percent to 171 rupees, the most since Oct. 22, 2008. Ambuja will buy Holcim’s 50 percent stake in ACC Ltd. by paying 35 billion rupees to the world’s biggest cement maker and a share swap. The deal means Ambuja will spend 92 percent of the 38 billion rupees it held in cash as of March 31, data compiled by Bloomberg show.
Brokerages including Bank of America Corp. and Religare Capital Markets are among at least seven brokerages that cut their recommendation on Ambuja, saying the transaction won’t benefit minority shareholders.
Copper producer Sterlite Industries (India) Ltd. lost 2 percent to 80.3 rupees. The company’s first-quarter earnings fell a worse-than-expected 22 percent in the June quarter after its only smelter was ordered shut for polluting the atmosphere, according to a filing. Aluminum producer Hindalco Industries Ltd. slid 1 percent to 102.2 rupees. Tata Steel Ltd. decreased 2.9 percent to 222.85 rupees.
Maruti Suzuki India Ltd. lost 0.1 percent to 1,414 rupees. The nation’s biggest carmaker by volume reported first-quarter profit that beat analyst estimates after a weaker Japanese yen lowered import costs. Net income at Suzuki Motor Corp.’s Indian unit rose to 6.32 billion rupees in the three months ended June, beating the 6.18 billion rupee median of 45 analysts’ estimates compiled by Bloomberg.
Seven out the 11 index members that have posted earnings so far for the June quarter beat analyst estimates. About 27 percent of companies in the measure missed forecasts for the three months ended March, and 43 percent in the quarter through December, data compiled by Bloomberg show.
The Sensex has rebounded 6.8 percent from a two-month low on June 24, helped by better-than-estimated corporate earnings. The measure trades at 13.9 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 10.1 times.
Global funds sold $66 million of local shares yesterday, paring this year’s net purchases to $12.3 billion, data compiled by Bloomberg show. They have sold a net $1 billion of domestic stocks this month, the most among 10 Asian markets tracked by Bloomberg, extending June’s $1.8 billion sell-off.
The CNX Nifty Index on the National Stock Exchange fell 1.4 percent to 5,907.50. India VIX, which gauges the cost of protection against losses in the Nifty, lost 1.1 percent.