India’s Sensex Sinks Most in Two Years as Rupee Drops to Record

Indian stocks plunged, with the benchmark index dropping the most in almost two years, amid concern that government efforts to stem the rupee’s slide to a record low will curb economic growth.

State Bank of India fell 3.3 percent to the lowest level in four years. ICICI Bank Ltd. slumped 5.2 percent. Bharat Heavy Electricals Ltd., India’s biggest power-equipment maker, plunged to the lowest level in eight years. Hero MotoCorp Ltd. jumped to the highest close in more than a year after MSCI Inc. increased the stock’s weighting in its indexes. The rupee weakened as much as 0.9 percent to 62.005 per dollar, an all-time low.

The S&P BSE Sensex Index dropped 4 percent to 18,598.18 at the close in Mumbai, the steepest retreat among global equity indexes tracked by Bloomberg. The rupee plunged today even as the Reserve Bank of India tightened restrictions on overseas investments by local companies and cut the ceiling on remittances by residents. The latest steps to stop capital outflows followed government moves since July to tighten cash supply, restrict currency derivatives and curb gold imports.

“The cost that we are paying as an economy for the stabilization of the rupee is too high, because it has not helped the rupee as much but has harmed the economy,” Rashesh Shah, chairman of Edelweiss Financial Services Ltd., said in an interview with Bloomberg TV India today. “Currency is a fight that very few central banks in the world have been able to conquer.”

Foreign Outflow

Foreigners pulled $3 billion from stocks and bonds last month amid concerns the U.S. Federal Reserve will cut stimulus. The outflow has left the rupee vulnerable to a current-account gap that widened to a record 4.8 percent of gross domestic product in the year ended March.

International investors cut their holdings of Indian bonds by $10 billion since a peak in May to $28 billion, the lowest since January 2012, according to central bank data. Steadying the rupee is the top priority, the monetary authority said on July 29.

Economic Affairs Secretary Arvind Mayaram today said there is no intent to defend the rupee at a particular level. The government doesn’t plan to curb commercial outflows or impose capital controls, he said.

The currency has weakened 27 percent in the past two years, the biggest tumble since the government pledged gold reserves in exchange for loans from the International Monetary Fund in 1991.

‘Lost Plot’

“Somehow the Finance Ministry and the RBI completely lost the plot,” Jagannadham Thunuguntla, chief strategist at New Delhi-based SMC Global Securities Ltd., told Bloomberg TV India today. “They completely misread the situation and somehow started on a wrong footing that has led to a series of errors. The measures they are taking are ointment for a fracture.”

State Bank of India tumbled 3.3 percent to 1,570.60 rupees, the lowest close since July 2009. ICICI Bank Ltd., the country’s second-biggest lender, dropped 5.2 percent to 858.60 rupees.

HDFC Bank Ltd., the biggest lender by market value, lost 5.4 percent to 587.90 rupees. Axis Bank Ltd. sank 8.8 percent to 1,048.95 rupees, the biggest loss since July 2009. MSCI deleted Axis Bank from MSCI Standard and MSCI Large Cap indexes. The 13-member S&P BSE Bankex Index of financial stocks slid 5.6 percent, the most since July 2009. The gauge has tumbled 25 percent this year.

Bharat Heavy Electricals plunged 11 percent to 105.55 rupees, the lowest close since August 2005. Larsen & Toubro Ltd. decreased 5.3 percent to 757.45 rupees, its lowest level since June 2012. Aluminum producer Hindalco Industries Ltd. lost 4.7 percent to 93.55 rupees.

Hero MotoCorp, India biggest motorcycle maker, rose 2.6 percent to 1,985.35 rupees.

Volatility Surge

The CNX Nifty Index on the National Stock Exchange tumbled 4.1 percent to 5,507.85. India VIX, which gauges the cost of protection against losses in the Nifty, surged 26 percent, the biggest increase in the volatility index since October 2008. Volume on the Sensex today was 63 percent more than the 30-day average.

The Sensex has lost 4.3 percent this year and trades at 13.2 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 10.1 times.

About 47 percent of Sensex companies missed analysts’ earnings estimates for the June quarter, compared with 27 percent for the three months ended March and 43 percent in the quarter through December, data compiled by Bloomberg show.

“Any optimism about future economic growth and corporate earnings is at least two or three quarters away,” Edelweiss’s Shah said.

International investors bought a net $12.4 million of Indian shares on Aug. 13, data from the regulator show. That took this year’s inflow to $12.53 billion, the second-biggest among 10 Asian markets tracked by Bloomberg.

Before it's here, it's on the Bloomberg Terminal.