Sensex Drops With Rupee on Factory Data, Fed Rate Outlook

Indian stocks and the rupee fell the most in five weeks after monthly factory output weakened and on speculation the U.S. Federal Reserve will signal a move toward interest-rate increases at a meeting this week.

The S&P BSE Sensex lost 0.9 percent to 26,816.56 at the close, while the rupee slid 0.8 percent to 61.15 per dollar, the weakest level since Aug. 13. Aluminum producer Hindalco Industries Ltd. tumbled 3 percent, sending a gauge of 10 metal producers to its fourth day of losses.

Industrial-production expansion slowed to 0.5 percent in July, from 3.4 percent a month earlier, a report showed after markets hours on Sept. 12. Economists surveyed by Bloomberg had forecast 1.8 percent growth. The Fed, which meets Sept. 16-17, is considering the timing of borrowing-cost increases and whether to revise its public guidance on the path of rates.

“There is a growing hawkish expectation from the Fed and that is causing a lot of nervousness,” Ankur Jhaveri, co-head of currency and rates at Edelweiss Financial Services Ltd. in Mumbai, said by phone today. “Weaker industrial production also doesn’t support an improving outlook for the economy.”

Hindalco retreated 3 percent to its lowest level since June 27, while Tata Steel Ltd., the biggest producer of the alloy, dropped to a two-month low. Sesa Sterlite Ltd., the nation’s biggest copper producer, lost 1.3 percent. The S&P BSE Metal Index completed its longest losing streak since May 2.

Oil & Natural Gas Corp., the nation’s largest explorer, retreated to a three-week low and Coal India Ltd., the world’s biggest miner of the fuel, retreated to a four-month low.

Coal India had the biggest weekly loss in six weeks last week, while Oil & Natural Gas ended a five-week rally after the government said it would sell shares in the state companies.

Consumer Prices

The Sensex has increased 27 percent this year, the best performer among the world’s 10 biggest markets, as foreigners bought $14.1 billion of shares, the most among the eight Asian markets tracked by Bloomberg. Prime Minister Narendra Modi’s government has prioritized curbing food costs, part of a sweeping agenda that also seeks to revive economic growth from near a decade low.

Consumer prices grew 7.8 percent from a year earlier in August, versus 7.96 percent in July, a separate report showed. While gains have cooled from as much as 11.16 percent last November, the Reserve Bank of India aims to limit the pace of retail inflation to 8 percent or less by January 2015.

“Inflation is coming down and this is consistent with our forecast and I am glad,” RBI Governor Raghuram Rajan said in Mumbai today. “Macro indicators are improving but still have some way to go before we can declare we are out of the woods and claim victory on inflation.”

Wholesale inflation prices in August slowed to a five-year low of 3.74 percent, data showed today. That compares with 5.19 percent in July. The median estimate was 4.33 percent.

U.S. Rates

India’s central bank left the key interest rate unchanged at 8 percent on Aug. 5 and meets next on Sept. 30.

U.S. equities fell last week, with the Standard & Poor’s 500 Index ending the longest streak of gains this year, as speculation grew that the world’s largest economy is recovering enough to justify higher interest rates sooner than anticipated.

“We are probably reaching closer to the initiation of interest rate increases in the U.S., probably a long time still for Japan and Euro area” to follow, he said.

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