Indian ADRs Post Biggest Drop in a Week on Budget Concerns

Indian shares traded in New York dropped the most in a week, following shares in Mumbai lower, amid concern the nation’s budget lacks measures to curb expenditure key to containing the fiscal gap. Stock futures fell in Singapore and rupee forwards sank to near a six-week low.

The Bank of New York Mellon India ADR Index tumbled 1.8 percent to 1,111.51 in New York, capping a 2.8 percent monthly decline, its biggest since October. SGX CNX Nifty index futures for March delivery fell 0.6 percent to 5,726 at 9:59 a.m. in Singapore. The underlying Nifty index slumped 1.8 percent yesterday, the biggest loss since May 8. The S&P BSE Sensex sank 1.5 percent to 18,861.54, ending February with a drop of 5.2 percent, its first monthly loss since October.

India is targeting a shortfall of 4.8 percent of gross domestic product in the year starting April 1, and posted a 5.2 percent gap in 2012-2013, Finance Minister Palaniappan Chidambaram said in parliament yesterday. He allocated 330 billion rupees ($6.1 billion) for a rural jobs program and 100 billion rupees for a plan to give the poor food grains, before elections next year. That’s raised concern the 4.8 percent fiscal-gap goal may not be met.

“The main issue, that of curbing expenditure, hasn’t been tackled,” Jeff Chowdhry, head of emerging-market equities at U.K.-based F&C Asset Management Plc., which oversees about $150 billion, told Bloomberg TV India yesterday. “Expectations which have been heightened in the last few months, particularly in terms of tackling the budget deficit, haven’t been followed through. There’s not much in it for the market or the economy.”

GDP Data

The rupee’s one-month non-deliverable forwards dropped 0.2 percent to 54.90 per dollar in Tokyo. The currency may weaken to 55 per dollar in three months, Goldman Sachs forecast.

Total expenditure will climb to 16.7 trillion rupees in 2013-2014 from an estimated 14.3 trillion rupees this financial year, Chidambaram said. The budget set gross market borrowing at a record 6.29 trillion rupees for 2013-2014, an increase of almost 13 percent. Net borrowing will be 4.84 trillion rupees.

“The increase in expenditure should be supportive of growth,” Neelkanth Mishra and Ravi Shankar, analysts at Credit Suisse Group AG, wrote in a report e-mailed today. “However, boosting consumption with investment remaining weak could hurt the current-account deficit and therefore the currency.”

Expenditure Control

While a transaction tax on equity futures was pared to 0.01 percent from 0.17 percent, Chidambaram imposed a one-year 10 percent tax surcharge on personal incomes above 10 million rupees and raised the levy on some companies to 10 percent.

GDP expanded 4.5 percent in the December quarter, trailing the median estimate of 4.9 percent, official data showed after markets closed. That’s the slowest pace since the three-month period through March 2009, data compiled by Bloomberg show.

“To meet the fiscal deficit number, revenue needs to grow at 20 percent, a challenge given the moderate growth rate, and would need continued expenditure control,” Rajat Jain, chief investment officer at Principal PNB Asset Management Co. in Mumbai, said by e-mail. “There are no major initiatives, which is not surprising given that it is a pre-election budget. It is going to be more about execution.”

Bad Loans

ICICI, India’s second-largest lender by assets, fell to $41.92 in New York, with trading volumes 2.4 times the daily average over the past three months. The shares lost 4 percent to 1,040.4 rupees, or $19.10, in Mumbai, the lowest level since Nov. 27. One ADR represents two ordinary shares.

Infosys slumped 1.1 percent to $53.93. Shares traded in India fell 0.1 percent to 2,907 rupees, or $53.48.

State Bank of India sank 6 percent to 2,080.9 rupees, the most in a year. The S&P BSE Bankex of 14 lenders slumped 3.6 percent, the sharpest drop in a year, amid concern the budget’s continued focus on growth in farm credit may keep bad loans elevated, Ananda Bhoumik, senior director at a local unit of Fitch Ratings, said by e-mail.

The budget set an agriculture credit target of 7 trillion rupees even as the nation expects to exceed the 5.75-trillion rupees target this year ending March.

Maruti Suzuki India Ltd. retreated 3.9 percent to 1,354.35 rupees. Mahindra & Mahindra Ltd., India’s top maker of sport-utility vehicles and tractors, lost 2.1 percent to 873.7 rupees. Tata Steel Ltd., India’s biggest producer of the alloy, fell 4.4 percent to 341.5 rupees.

‘Resilient Flows’

The government has stepped up efforts to revive growth and cool inflation of almost 7 percent under policy changes since September. The measures have prompted foreigners to purchase a net $8.48 billion of local shares this year, a record for the period, data compiled by Bloomberg show. Overseas funds bought a net $155 million of Indian stocks on Feb. 27, data from the market regulator show.

“Inflows have historically been reasonably resilient to slowdown in markets or GDP growth,” Shankar Sharma, joint managing director at First Global Stockbroking Ltd., said in an interview with Bloomberg TV India. “I don’t think the flows will go into negative territory or slowdown significantly. India is a large market and overseas investors need an allocation.”

The Sensex index trades at 13.3 times projected 12-month profits, compared with the MSCI Emerging Markets Index’s 10.2 times, data compiled by Bloomberg show.

Rollovers in Nifty futures to the March series were 54.5 percent at 6:01 p.m. yesterday, compared with 64.4 percent for January series, the data show. Derivative contracts in India expire on the last Thursday of the month.

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