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India’s Sensex Retreats as ONGC Drops Most in Three Years on Oil

Indian stocks dropped for a second day, erasing earlier gains, as energy companies retreated amid rising crude prices.

Oil & Natural Gas Corp., the largest state-run explorer, plunged the most since August. Reliance Industries Ltd., owner of the world’s largest refining complex, dropped the most in a month. Maruti Suzuki India Ltd. dropped for the first time in three days. Brent crude traded at a nine-month high as Iraqi forces battled insurgents north of Baghdad.

The S&P BSE Sensex slid 0.2 percent to 25,201.80, wiping out an intraday gain of 0.7 percent. The measure has fallen 1.5 percent since closing at a record on June 10 as rising energy costs and forecast for weaker rains threaten to undermine Prime Minister Narendra Modi’s efforts to curb inflation, and limit the central bank’s scope to ease monetary policy.

“High oil prices can upset some of the calculations of the government and the Reserve Bank of India,” said Vaibhav Sanghavi, managing director of Ambit Investment Advisors Pvt. in Mumbai. “Geopolitical risks are weighing on sentiment.”

Brent climbed as much as 0.5 percent in London, extending last week’s 4.4 percent rally that was the steepest since July. Iraqi forces regained control of the Baiji oil refinery, the nation’s biggest, as President Barack Obama told top U.S. lawmakers that he won’t need additional congressional approval for the options he’s considering in response to the crisis.

Oil & Natural Gas tumbled 5 percent, the third-biggest loser on the MSCI Emerging Markets Index today. India’s oil ministry proposes higher price be allowed only for incremental gas production, Financial Express newspaper reported. Oil India Ltd. had the biggest drop since Aug. 28. Reliance slid 2.3 percent, the most since May 20.

Maruti decreased 2.3 percent, paring this year’s gains to 35 percent. Coal India Ltd. dropped 2.3 percent.

Retail Inflation

Modi faces the task of reviving the economy after the BJP became the first in 30 years to win a parliamentary majority in India. Growth is holding near a decade-low and retail inflation has averaged about 10 percent in the past two years, eroding the purchasing power of more than 800 million people who live on less than $2 a day.

The RBI left interest rates unchanged on June 3, and said further tightening won’t be warranted if retail inflation stays on course to hit 8 percent in January 2015.

The Sensex has risen 19 percent this year, the most among BRIC markets, as foreigners bought $9.9 billion of domestic shares, the highest inflows among eight Asian markets tracked by Bloomberg. The gauge trades at 15.5 times projected 12-month profits, near the most expensive level since April 2011. The MSCI Emerging Markets Index is valued at a multiple of 11.

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