Sensex Drops Most in More Than Two Months as Fed Signals Taper

Indian stocks fell, sending the benchmark index to the biggest decline in more than two months, after minutes from the U.S. Federal Open Market Committee’s last meeting signaled stimulus may be reduced in coming months.

ICICI Bank Ltd. retreated 1.8 percent, dragging a measure of lenders to the lowest level in a week. Larsen & Toubro Ltd. decreased the most since Nov. 11, pacing losses among makers of capital goods. Cigarette maker ITC Ltd. had the biggest fall in two months. The rupee weakened for a second day.

The S&P BSE Sensex slipped 2 percent to 20,229.05 at the close, the most since Sept. 3. The gauge’s 10-day volatility measure climbed to the highest level since Oct. 4. The Fed’s $85 billion monthly bond-buying program has boosted flows to Indian stocks. Overseas investors have bought $17.2 billion of the local shares this year, the highest after Japan among 10 Asian markets tracked by Bloomberg, helping the Sensex climb to an all-time high on Nov. 3.

“If you have been a big beneficiary of quantitative easing, there will be pain when the tapering happens, and that is what people are afraid of,” U.R. Bhat, managing director of Dalton Capital Advisors India Pvt., said by phone from Mumbai. “Mere talk of tapering is enough for the market to fall.”

The Sensex has gained 4.1 percent this year and trades at 13.2 times projected 12-month profits, compared with the MSCI Emerging Markets Index’s 10.5 times.

ICICI Bank retreated to a one-week low. The S&P BSE India Bankex index lost 2.5 percent, the most since Oct. 15.

Reliance Fined

Larsen dropped 2.9 percent to 948.10 rupees. The S&P BSE India Capital Goods Index slumped 2.4 percent, the most since Nov. 11. ITC tumbled to 312.95, the lowest price since Sept. 5, dragging down the S&P BSE FMCG Index for a third day.

Reliance Industries Ltd., owner of the world’s largest refining complex, fell 1.7 percent. The government fined Reliance an additional $792 million for a less-than-targeted natural-gas output from its KG-D6 block, the Press Trust of India reported, citing an unidentified oil ministry official.

The rupee weakened 0.6 percent to 62.925 per dollar, the most since Nov. 12. The yield on 10-year government bond rose four basis points, or 0.04 percentage points, to 9.08 percent.

“We expect Indian bond yields to continue to firm up, which will further weaken the rupee,” B.P. Singh, the chief investment officer for equities at Pramerica Asset Managers Pvt., said on Bloomberg TV India today. “We may get into a risk-off trade in the next six months.”

Fed Outlook

The Fed’s stimulus program might be reduced as the world’s largest economy improves, minutes of the policy-setting Federal Open Market Committee’s Oct. 29-30 meeting showed yesterday. India’s slowing growth, quickening inflation and the reduction in the central bank’s direct dollar supplies to oil importers are also exerting downward pressure on the rupee, according to a Credit Agricole CIB note yesterday.

Eighty percent of investors expect the Fed to delay a decision to begin reducing its bond buying until March 2014 or later, with just 5 percent looking for a move next month, according to the latest Bloomberg Global Poll.

International investors bought a net $155.6 million of Indian shares on Nov. 19, a 31st straight day of purchases and the longest consecutive inflow since the 35 days through Feb. 15, according to data from the market regulator.

The CNX Nifty Index slid 2 percent to 5,999.05.

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