Indian stocks dropped the most in four months on concern rising oil prices will spur inflation and widen the nation’s trade deficit. The rupee weakened to a four-week low and bonds declined.
The S&P BSE Sensex slid 1.4 percent to 25,228.17 at the close, the most since Feb. 3. The gauge fell 0.7 percent this week. Indian Oil Corp., the nation’s largest state-run refiner, slumped the most in 11 months. The rupee lost 0.9 percent, the most in Asia. Yield on the government’s 8.83 percent notes due November 2023 increased five basis points, the most in almost a month, to 8.60 percent.
Higher fuel costs may stoke inflation in a country that buys about 80 percent of its crude from abroad, undermining Prime Minister Narendra Modi’s efforts to curb consumer prices and revive economic growth from near the weakest level in a decade. Oil headed for its biggest weekly advance since July in London as escalating violence in Iraq threatened supplies from OPEC’s second-largest producer.
“Rising crude oil prices will raise inflation,” Nirakar Pradhan, the chief investment officer at Future Generali India Life Insurance Co., which has $672 million in assets, said by phone from Mumbai.
Brent crude jumped 4.6 percent this week after militants linked to al-Qaeda captured the northern Iraqi city of Mosul and moved south toward Baghdad.
The spike in oil overshadowed government data yesterday showing consumer prices slowed more than economists projected and factory output expanded. India’s central bank signaled this month it could ease monetary policy if inflation slows faster than anticipated.
The “flaring up of oil prices has countered the good set of data we had last evening,” Arun Kejriwal, a director at Kejriwal Research & Investment Pvt., said by phone from Mumbai.
The S&P BSE Mid-Cap Index slid 2.5 percent, the steepest loss in four months, and an index of 446 small-sized companies tumbled 3.1 percent, the most since Feb. 27, 2012. The indexes have rallied at least 33 percent this year, faster than the 20 percent increase in the Sensex.
The rupee declined 0.9 percent to 59.7725 per dollar, the most since Jan. 24. The currency slid 1 percent this week.
The Sensex is valued at 15.5 times projected 12-month profits, near the highest level since January 2011. That compares with the MSCI Emerging Markets Index’s multiple of 11. The Sensex’s 14-day relative strength index was 77 yesterday. Some investors see readings above 70 as a signal to sell.
Foreigners have bought a net $9.3 billion of local shares this year, the most among eight Asian markets tracked by Bloomberg. They purchased a net $184 million of stocks today, according to provisional data from exchanges.