Indian equities declined the most in six weeks amid speculation a drop in the rupee to a record may prompt the central bank to further tighten money supply.
Tata Power Co., the nation’s biggest non-state generator, sank the most in nine years after reporting a loss. HDFC Bank Ltd. tumbled 3.8 percent, leading a gauge of 13 lenders to its biggest slide in two weeks. Oil & Natural Gas Corp. slumped to a seven-month low as a weakening rupee increases the subsidy it gives state refiners on crude supplies.
The S&P BSE Sensex plunged 2.3 percent to 18,733.04, the lowest close since June 26. Volume was 35 percent higher than the 30-day average. A gauge of 100 stocks closed at an 11-month low. The rupee slid to 61.8063 per dollar as U.S. data boosted speculation the Federal Reserve will reduce stimulus that has driven demand for emerging-market assets. The central bank last month increased two borrowing costs, curbed funding support for banks and raised lenders’ daily reserve requirements to shore up the currency.
“There’s speculation the RBI may take immediate steps” to arrest the fall in the rupee, A.K. Prabhakar, senior vice president of equity research at Anand Rathi Financial Services Ltd., said by phone. “Interest rate-sensitive stocks were hit on fears that the cash-reserve ratio may be increased.”
A weaker rupee stokes inflation as India imports about 80 percent of its oil. The Reserve Bank of India pared its growth forecast for the year ending March 2014 to 5.5 percent from 5.7 percent on July 30 while maintaining the benchmark rate at 7.25 percent. The depreciation of the rupee has put the country into a vicious spiral, Governor Duvvuri Subbarao said the same day. Asia’s third-biggest economy expanded at the slowest pace in a decade in the year ended March 31.
“The currency as well as economic growth is a big issue in the short term,” David Gaud, a Hong Kong-based senior money manager at the asset management unit of Edmond de Rothschild Group, told Bloomberg TV India today. “That may force a few investors to take some bit of money from the table.”
The rupee erased an intraday loss of 1.5 percent to close at 60.8088, up 0.1 percent.
HDFC Bank tumbled to 608.65 rupees, the lowest price in more than four months. State Bank of India, the biggest by assets, decreased 2.4 percent to 1,641.4 rupees, the lowest close since January last year. Yes Bank Ltd. sank 8.2 percent to 275.15 rupees, extending this year’s slide to 40 percent . The S&P BSE Bankex retreated 3.9 percent, its sharpest drop since July 24.
Housing Development Finance Corp. plunged 5.9 percent to 751.85 rupees, the most since July 2009.
A cash crunch is forcing lenders to pay more to attract deposits even as loans grow at the slowest pace since 2009. HDFC Bank raised interest rates on savings maturing up to one year by as much as one percentage point from July 27, while Yes Bank said it added as much as 0.5 percentage point from Aug. 1.
The RBI raised money-market rates last month to support the rupee, which has lost 9.6 percent this year. It said last week the tightening measures are temporary, triggering a 3 percent decline in the Sensex in the period.
The “tightening implies growth recovery delayed for now and earnings cuts ahead,” UBS AG analyst Gautam Chhaochharia wrote in a report today. “Recent moves in the rupee and the RBI measures have bought tail risk to the fore.” UBS cut the trading range for the CNX Nifty Index to 5,250 to 6,100 from 5,500 to 6,400 previous, according to the note. The 50-stock gauge tumbled 2.5 percent to 5,542.25, a four-month low.
Oil & Natural Gas decreased 3.3 percent to 267.35 rupees, the lowest close since Dec. 28. Refiner Hindustan Petroleum Corp. dropped 6.1 percent to 178.45 rupees, the lowest in five years. Bharat Petroleum Corp. slumped 7.2 percent to 261.45 rupees, extending its four-day slide to 19 percent.
A weak rupee increases oil import costs for state refiners who pay for crude shipments in dollars. The refiners sell fuels at prices set by the government and higher import costs boosts their revenue losses. ONGC and Oil India Ltd. compensate the refiners by selling them crude at a discount.
Tata Power slumped 15 percent to 71.4 rupees, the sharpest loss since May 2004. The company posted a loss of 1.15 billion rupees in the quarter ended June, compared with a net income of 1.46 billion rupees a year earlier, according to a filing. A Bloomberg survey of 19 analysts had estimated a profit of 2.2 billion rupees. The stock slid 5 percent last week.
Bharat Heavy Electricals Ltd., the nation’s biggest maker of power equipment, decreased 6.8 percent to 112.6 rupees, its lowest price since November 2005. The stock dropped the most in nine years yesterday after its quarterly profit fell by half.
About 44 percent of Sensex companies that have reported earnings so far for the June quarter missed analyst estimates. That compares with 27 percent for the three months ended March, and 43 percent in the quarter through December, data compiled by Bloomberg show.
The Sensex has lost 3.6 percent this year and trades at 13.2 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 10 times.
Global funds bought a net $72.4 million of local shares on Aug. 2, a fourth straight day of net purchases, data from the regulator show. That takes this year’s inflow to $12.4 billion, the data show. They sold $986 million of Indian stocks in July.