Indian stocks tumbled for a second day, led by real-estate and construction companies, on concern inflation may prevent the central bank from paring interest rates further.
Unitech Ltd., a property developer, plunged 36 percent to the lowest price since January 2006, and Jaiprakash Associates Ltd., a builder of dams and roads, slumped the most in six years. State Bank of India, the nation’s biggest lender, fell to a two-month low, the worst performer on a gauge of lenders. Nestle India Ltd. plunged the most in nine years amid reports its Maggi instant noodles were unfit for consumption.
The Sensex lost 1.3 percent to 26,837.20 at the close, taking the two-day drop to 3.6 percent, the most since August 2013. Central bank Governor Raghuram Rajan on Tuesday trimmed borrowing costs for a third time this year and linked further reductions to the monsoon. Two hours later, the government said this year’s rainfall will be less than its prediction in April, spurring concern dry weather may halt further monetary easing.
“Highly-leveraged companies in the infrastructure and real-estate space are in for trouble as hopes of further easing have faded,” Paras Bothra, vice president of equity research at Ashika Stock Broking Ltd., said by phone from Mumbai. “The market was hoping that these companies would somehow wriggle out of the mess, but now that possibility looks remote.”
Unitech slid to 8.7 rupees. Jaiprakash Associates plunged 21 percent to its lowest level since July 2004, and its group company Jaiprakash Power Ventures Ltd. tumbled 7.8 percent to the lowest price since April 2005.
Jaiprakash Associates’ net debt of 592 billion rupees ($9.3 billion) is 18 times its market value, while Jaiprakash Power’s borrowings of 265.3 billion rupees is about 14 times, data compiled by Bloomberg show. Unitech’s net debt of 35.65 billion rupees exceeds its market value of 23 billion rupees.
“Selling in stocks with high debt triggered margin calls, which sent ripples across the broad market,” Anita Gandhi, a director at Arihant Capital Markets Ltd. in Mumbai, said by phone.
The Sensex, among the world’s best performer in 2014, has lost 2.4 percent this year as enthusiasm waned over Prime Minister Narendra Modi’s ability to push through major economic proposals and earnings at the 30 companies in the gauge dropped for a second straight quarter in March.
CLSA Asia-Pacific Markets trimmed its Sensex December 2015 target by 3 percent to 28,500, saying the investment cycle pick up is unlikely in the year through March 2016, analysts Mahesh Nandurkar, Abhinav Sinha, Alok Srivastava wrote in a note today.
“The Modi premium is fast disappearing,” Gandhi said. “Some froth accumulated over the past year is coming off.”
Nestle India plunged 9.1 percent, the steepest since June 2006. Delhi’s government yesterday said that lab tests done on 13 samples of Maggi found that 10 of them were unsafe for consumption as they contained lead in excess of the maximum permissible 2.5 parts per million, PTI reported. Nestle spokesman Himanshu Manglik was unreachable on his mobile phone and did not immediately respond to an e-mailed questionnaire.
Tata Power Co., the biggest non-state generator, fell 5.6 percent, the worst performer on the Sensex. Oil & Natural Gas Corp., India’s largest explorer, decreased 3.9 percent to its lowest level since April 30, while ITC Ltd. tumbled 4.5 percent.
State Bank of India lost 3.3 percent, after plunging 4.3 percent on Tuesday. ICICI Bank Ltd. dropped 2.9 percent.
Global investors sold a net $105 million of Indian stocks on June 2, paring the year’s inflows to $7.1 billion.