Indian stocks declined, with the benchmark index halting a four-week rally, amid concerns the central bank may tighten monetary-policy further after Governor Raghuram Rajan’s comment that inflation is still high.
ICICI Bank Ltd. retreated 2.4 percent, sending a gauge of 13 lenders to a three-week low. Power-equipment maker Bharat Heavy Electricals Ltd. was the worst performer on the index, ending a three-day, 12 percent rally. Tata Steel Ltd. fell the most in a month, pacing losses among metal producers.
The S&P BSE Sensex slid 0.8 percent to 19,727.27, taking the week’s loss to 2.7 percent. Volume on the measure was 41 percent less than the 30-day average at the close. Rajan will add to last week’s surprise rate increase after specifying he will use retail inflation as the main guide for monetary policy for the first time, seven of 10 analysts said in a Bloomberg News survey. Core inflation remains high, Rajan told reporters yesterday during a visit to Frankfurt, Germany.
“The clear writing on the wall is that the Reserve Bank of India will increase interest rates,” Andrew Freris, chief investment adviser for Asia at BNP Paribas Wealth Management, said in an interview on Bloomberg TV India today. “It is not an environment that is favorable for equities. India is on our negative choices rank now.”
ICICI Bank dropped to 923.3 rupees, the lowest close since Sept. 5. HDFC Bank Ltd. lost 2 percent to 608.9 rupees. State Bank of India, the nation’s biggest lender, fell 2.1 percent to 1,640.7 rupees. The S&P BSE Bankex Index dropped 1.8 percent to its lowest level since Sept. 5.
Bharat Heavy fell to 143.75 rupees. Sports-utility-maker Mahindra & Mahindra Ltd. fell 1 percent to 844 rupees, its biggest weekly drop this month.
Tata Steel Ltd., the nation’s biggest maker of the alloy, plunged 4.2 percent to 287.4 rupees. Aluminium maker Hindalco Industries Ltd. slumped 2.7 percent to 113.9 rupees. The S&P BSE Metal Index declined 1.6 percent, the most in two weeks.
Rajan, vowing to fight inflation, raised the repurchase rate by a quarter point to 7.5 percent in his first review on Sept. 20. He also eased some liquidity curbs in the banking system imposed by predecessor Duvvuri Subbarao to support the rupee. The currency’s 4.9 percent advance in September is the best performance among Asia’s 11 most-traded currencies. The rupee fell from a one-week high, losing 0.7 percent to 62.4975 per dollar.
The rupee’s appreciation and the U.S. Federal Reserve’s decision on Sept. 18 to maintain its bond-buying program has spurred foreign funds to plow a net $2.1 billion into local equities this month, headed for the first monthly net inflow since May. They bought a net $66 million of local shares on Sept. 26, data from the regulator showed yesterday.
The inflows helped the Sensex post its best monthly gain in a year. The gauge has risen 1.6 percent this year and trades at 13.7 times projected 12-month earnings, compared with the five-year average of 14.1 times, data compiled by Bloomberg show. The MSCI Emerging Markets Index is trading at 10.5 times.
The CNX Nifty Index fell 0.8 percent to 5,833.20. India VIX, which gauges the cost of protection against losses in the Nifty, gained 0.3 percent.