Indian equities had the steepest decline in about four weeks and bonds fell on concern the central bank’s interest-rate cut on Tuesday won’t be enough to offset the impact of deficient rainfall on economic growth.
The S&P BSE Sensex tumbled 2.4 percent to 27,188.38 at the close in Mumbai, the most since May 6. The yield on the debt due in 2024 rose 11 basis points to a two-week high of 7.93 percent, while the rupee lost 0.2 percent to 63.8250 a dollar.
Reserve Bank of India Governor Raghuram Rajan cut the key rate by 25 basis points and said he will wait to assess monsoon rains before easing further, disappointing investors looking for more reductions to spur weak economic growth. The rainfall will be less than predicted in April, the government said less than two hours after the RBI’s decision. Below-normal showers may fan prices of everything from rice to vegetables in Asia’s third-largest economy, where food costs account for almost 50 percent of the consumer price index.
“This is a time when the economy needs a boost and these little drops of 25 basis points won’t help,” Ajay Srivastava, managing director of Dimensions Consulting Pvt., said in an interview with Bloomberg TV India. “A perfect environment will never exist.”
While retail inflation eased to a four-month low of 4.87 percent in April, staying below the RBI’s stated limit of 6 percent by January 2016, the prospect of inadequate rain and rising crude prices are risks, Rajan said. Consumer prices may drop until August and then start rising to about 6 percent by January, he said.
The rainfall may be 88 percent of a 50-year average of 89 centimeters (35 inches) between June and September, less than the 93 percent forecast in April, Earth Sciences Minister Harsh Vardhan told reporters in New Delhi.
“The hawkish tone of the central bank has cast doubts on the possibility of any further rate cuts this year,” said Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai.
Rajan had earlier reduced the benchmark rate by 25 basis points each in unscheduled moves in January and March, before holding it steady at an April 7 review.
India’s economy grew 7.3 percent in the year ended March 31, government data showed on Friday, below the 7.4 percent median estimate in a Bloomberg survey. About 57 percent of the 30 Sensex companies reported weaker-than-estimated profits for the March quarter. Results at 47 percent of the companies beat or matched estimates for the December quarter.
“Even a 50-basis point cut wouldn’t have immediately changed the fundamentals, which remain weak as witnessed in the latest quarterly earnings,” Ashu Madan, the chief operating officer of Religare Securities Ltd., said in an interview with Bloomberg TV India on Tuesday. “There are no triggers to take the market up beyond a point.”
State Bank of India Ltd., the nation’s biggest lender, paced declines among its peers and was the worst performer on the Sensex. Hero MotoCorp Ltd. tumbled the most in five weeks after motorcycle sales declined 5.4 percent last month. Housing Development Finance Corp., the top mortgage lender, declined to a two-month low and ITC Ltd., the largest cigarette company, had the biggest loss in three months.
The Sensex has lost 1.1 percent this year and is valued at 15.2 times estimated 12-month earnings, versus a five-year average of 14.4. The MSCI Emerging Markets Index is valued at a multiple of 12, data compiled by Bloomberg show.