Sensex Drops Most in Week as Indian Banks Decline on Fed Taper

Indian stocks declined, with the benchmark index falling the most in a week, after the U..S. Federal Reserve said it will start unwinding stimulus that had fueled demand for emerging-market assets.

ICICI Bank Ltd. retreated 3 percent, sending a gauge of lenders to its steepest drop in two months. Oil & Natural Gas Corp. retreated for a third time this week. Engineering company Larsen & Toubro Ltd. retreated 2.9 percent, halting a three-day rally. The rupee weakened to a two-week low intraday.

The S&P BSE Sensex fell 0.7 percent to 20,708.62 at the close in Mumbai, erasing an intraday gain of 0.8 percent. The Fed said it will cut monthly bond purchases to $75 billion from $85 billion amid an improved outlook for the U.S. job market. Global funds have bought a net $18.9 billion of Indian equities this year, the highest in Asia after Japan, helping the Sensex climb the most among the four largest emerging markets.

“We will get inflows, but at a reduced pace,” Anand Tandon, chief executive officer of JRG Securities Ltd. in Hyderabad, said in an interview to Bloomberg TV India today. “There will be a slowdown in money-printing in the U.S.”

ICICI Bank fell to 1,063.50 rupees, the lowest since Nov. 28. The S&P BSE India Bankex Index lost 2.4 percent. Housing Development Finance Corp. declined 2.8 percent to 776.25 rupees.

Oil & Natural Gas Corp. retreated 2.7 percent to 273.7 rupees. Reliance Industries Ltd. declined 0.7 percent. The BSE Oil & Gas Index slid 1.2 percent. Larsen & Toubro and Bharat Heavy Electricals Ltd. fell the most in a week.

The rupee ended little changed at 62.1175 per dollar. It touched 62.4250 earlier, the weakest level since Dec. 4.

Watching Inflation

The Reserve Bank of India kept the main repurchase rate at 7.75 percent yesterday, a move that allows Governor Raghuram Rajan to assess the impact of the Fed’s decision. The Sensex climbed to a one-week high yesterday after the RBI’s action. Rajan told reporters yesterday he’ll be watching to see whether a spike in retail prices last month is temporary.

India’s consumer prices rose 11.24 percent in November from a year earlier, the fastest among 17 Asia-Pacific economies tracked by Bloomberg. Wholesale inflation was 7.52 percent, a 14-month high. Gross domestic product grew 4.8 percent in the three months to Sept. 30.

“Yesterday’s gain in the Sensex was more than warranted and every rally is being used as an opportunity to sell,” K.K. Mital, head of portfolio management services at Globe Capital Market Ltd., said by phone from New Delhi. “There is still no clarity on interest rates, inflation and GDP growth. The market will remain in a narrow range.”

The Sensex has gained 6.6 percent this year and trades at 13.4 times projected 12-month profits, compared with the MSCI Emerging Markets Index’s 10.4 times. The CNX Nifty declined 0.8 percent to 6,166.65. The India VIX Index, a gauge of options prices on the Nifty, fell 5.5 percent.