Indian Stocks Close at Lowest Level Since November as Funds Sell

India’s benchmark stock index slid to more than a four-month low, as overseas investors sold the nation’s shares amid concerns economic growth is weakening and corporate earnings may disappoint.

The S&P BSE Sensex slid 1.6 percent to 18,509.70 at the close in Mumbai, the lowest level since Nov. 23. The gauge’s 30-day volatility rose to an 8-month high. Foreign funds sold shares on April 2 and 3, the first two-day sale since October, according to data compiled by Bloomberg. Infosys Ltd., the country’s second-largest software maker, slumped 3 percent. ICICI Bank Ltd. lost 2.2 percent.

Most automakers reported this week a drop in March sales from a year earlier, while Deutsche Bank wrote in a note last week that cement demand cooled for the first time in 12 years in the December quarter and earnings at producers may drop as much as 52 percent this year. India’s government predicts an annual economic expansion of 5 percent in the year ended March, the lowest in a decade.

“Foreign investors, who have been net buyers, seem to be selling now and that’s worrying the market,” V.K. Sharma, head of private broking and wealth management at HDFC Securities Ltd., said in an interview with Bloomberg TV India today.

Overseas funds sold a net $63.4 million worth of shares yesterday, after pulling out a net $5.5 million on April 2, data from the market regulator show.

Infosys slumped 3 percent to 2,880.05 rupees, its biggest drop since Oct. 12. The company will report earnings on April 12, marking the start of the reporting season for the March quarter. Net income at about 43 percent of the 30 Sensex firms trailed forecasts in the three months ended Dec. 31, compared with 40 percent in the previous two quarters.

U.S. Data

Tata Consultancy Services, Infosys’ larger rival, fell 2.3 percent to 1,507.80 rupees, the steepest drop since Dec. 17. Separate reports showed yesterday that U.S. companies boosted employment by a lower-than-forecast 158,000 workers in March, and the service industry expanded at a slower pace, spurring concern about growth in the world’s largest economy. Top Indian software exporters get at least half their revenue from the U.S.

ICICI Bank lost 2.2 percent to 1,008.80 rupees and Housing Development Finance Corp., India’s top mortgage lender, slid 2.4 percent to 792.35 rupees. Cigarettes-to-hospitality group ITC Ltd. tumbled 2.6 percent to 299.55 rupees, the most since Jan. 11. Bharti Airtel Ltd., the nation’s biggest mobile-phone services company, dropped for a third day, losing 2.6 percent to 273.60 rupees, its lowest close since Nov. 7.

The Sensex has dropped 4.7 percent this year amid concern over slowing economic growth, a record current-account deficit and the highest inflation rate among major emerging economies. The gauge trades at 12.5 times projected 12-month profits, compared the MSCI Emerging Markets Index’s 10.3 times.

‘Too Optimistic’

India’s current-account deficit widened to a record $32.6 billion in the December quarter, government data showed March 29. Meanwhile, an inflation rate that has remained above the central bank’s 5 percent comfort level has limited Reserve Bank of India Governor Duvvuri Subbarao’s ability to slash borrowing costs to revive the economy.

“Analysts are, as in fiscal 2013, being too optimistic about a recovery in the economy on the back of a sustained fall in interest rates,” analysts Jyotivardhan Jaipuria, head of India research at Bank of America Corp., and Anand Kumar wrote in a note yesterday. “So far, rate cuts have been slow and we think sales growth in fiscal 2014 will continue to be weak.”

The central bank last month reduced its key interest rate for the second time this year to revive the economy. The rate is still the highest among the largest Asian markets.

‘Serious Beating’

“We’re passing through difficult times,” Raamdeo Agrawal, joint managing director at Motilal Oswal Financial Services Ltd. in Mumbai, said in an interview with Bloomberg TV India yesterday. There isn’t “enough energy in the markets and mid-cap stocks have taken a serious beating.”

The S&P BSE Mid-Cap Index has plunged 14 percent this year and the S&P BSE Small-Cap Index has tumbled 20 percent.

Still, overseas investors have bought a net $10.3 billion of Indian stocks this year, a record for the period, data compiled by Bloomberg show. Inflows last year totaled $24.5 billion, the most among 10 Asian markets tracked by Bloomberg.

Flows accelerated as Prime Minister Manmohan Singh’s government began since September pursued reforms to revive faltering growth, including opening up aviation and retail industries to attract more overseas capital, cutting subsidies and easing rules on foreign investment in rupee bonds.

Volumes on the Sensex were 33 percent less than the 30-day average and the gauge’s 30-day historical volatility climbed to 14.92, the highest since July 8. The 50-stock CNX Nifty Index dropped 1.7 percent to 5,574.75, its lowest close since Nov. 20. Its April futures settled at 5,593.20. India VIX, which measures the cost of protection against losses in the Nifty, rallied 6.6 percent to 15.85, the biggest jump since March 13.

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