Indian Stocks Drop Most in Eight Weeks as Inflation Accelerates

Indian stocks fell for a third day amid concern the central bank may keep interest rates elevated after data showed consumer prices quickened last month for the first time since November.

Engineering company Larsen & Toubro Ltd. fell the most in three months. Infosys Ltd. dropped to a six-month low, pacing losses in a gauge of software exporters. Housing Development Finance Corp. declined for a third day. Tata Power Co. had its biggest three-day retreat since Jan. 7.

The S&P BSE Sensex lost 0.9 percent to 22,277.23 at the close, the most since Feb. 13. Consumer prices climbed 8.31 percent in March from a year earlier, government data showed after trading ended yesterday. Wholesale prices also rose more than estimated. Reserve Bank of India Governor Raghuram Rajan has raised the benchmark interest rate 75 basis points since taking charge in September to curb price rises. The next policy review is due June 3.

“The rise in wholesale and retail inflation is fueling speculation that the RBI may not be able to bring down interest rates,” R.K. Gupta, managing director of New Delhi-based Taurus Asset Management Co., said by phone today. “Also some investors are booking profits in stocks that have run up.”

Larsen & Toubro lost 2.9 percent, the most since Jan. 2. Bharat Heavy Electricals Ltd. fell to the lowest since March 6.

Infosys slid 3.1 percent to 3,157.3 rupees. Bigger rival Tata Consultancy Services Ltd. dropped 2.5 percent. The company said after trading ended that net income jumped 51 percent to 53 billion rupees ($878 million) in the quarter ended March 31 from a year earlier. That compared with the 52.4 billion-rupee median of 39 analysts’ estimates compiled by Bloomberg.

‘Still Weak’

Tata Power tumbled 3.5 percent, extending the two-day, 5.3 percent retreat.

The Sensex rose to a record on April 10 on expectations a victory by the opposition Bharatiya Janata Party will produce a majority government with the mandate to spur economic growth. Overseas investors have bought a net $4.8 billion of local shares this year, the most in Asia, data compiled by Bloomberg show.

“The fundamental situation still remains weak with high inflation and interest rates,” Tushar Pradhan, who manages about $1 billion as the chief investment officer at HSBC Asset Management (India) Pvt., told Bloomberg TV India today. “The market is not overheated, but people are placing their bets ahead of how the economy will shape up in the near future.”

India’s economy grew 4.9 percent in the year ended March 31, after decade-low growth of 4.5 percent the prior year, the Statistics Ministry estimates. Official data last week showed factory output shrank 1.9 percent in February from a year ago, while exports declined 3.2 percent to $29.6 billion in March.

The Sensex has risen 5.2 percent in 2014 and trades at 14.1 times projected 12-month profits, in line with the average multiple over the past five years. The MSCI Emerging Markets Index has lost 0.3 percent in 2014 and is valued at 10.4 times.

Overseas funds sold a net $68.8 million of Indian shares on April 11, the first daily outflow in a month, according to data compiled by Bloomberg. That took this year’s purchases to $4.76 billion, the second-highest among eight Asian markets tracked by Bloomberg, after Taiwan.

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