India’s Sensex Drops to Five-Week Low Before U.S. Fed Meeting

Indian equities retreated for the second day as investors await a Federal Reserve meeting this week for an indication on the timing of U.S. interest rate increases.

Housing Development Finance Corp., the biggest mortgage lender, fell to a one-month low, while NTPC Ltd., the largest power producer, slid for the second day. Sesa Sterlite Ltd. and Hindalco Industries Ltd. were the worst performers on the S&P BSE Sensex index.

The Sensex lost 0.2 percent to 28,437.71, the lowest close since Feb. 10. The Fed meets March 17-18, with investors keen to see if policy makers drop a pledge to be “patient” on the timing of the first rate increase since 2006. Foreigners pulled $3.7 billion from Indian stocks in three months through August 2013, the most since the global financial crisis in 2008, after the U.S. central bank said it may taper stimulus if the world’s largest economy improves.

“I won’t recommend anyone to get into the market in the next three days as I’m not sure how it will react if the word ‘patient’ is removed,” Anil Ahuja, chief executive officer of IPEplus Advisors, said in an interview with Bloomberg TV India today from Singapore. “We saw how markets reacted two years ago to a suggestion that taper was going to start.”

Overseas investors have purchased $5.3 billion of Indian shares this year, the most among eight Asian markets tracked by Bloomberg, amid optimism Prime Minister Narendra Modi will accelerate policy changes to boost growth. Higher U.S. rates will cool demand for emerging-market assets, “redirecting fund flows” back to the U.S., Ahuja said.

Housing Development Finance lost 1.7 percent, while NTPC tumbled 2.3 percent. Sesa slumped 5.3 percent to its lowest close since May 9, while Hindalco dropped 3.7 percent to its lowest level since March 27, 2014. A gauge of metal producers slid to a one-year low.

‘Earnings Trigger’

The Sensex has gained 3.4 percent this year and trades at 15.9 times its projected 12-month earnings. The MSCI Emerging Markets Index is valued at a multiple of 11.5. Earnings per share for companies on the Indian gauge slid 2.5 percent in the three months ended December, the first decline since the three months ended June 2013. Analysts project profits will climb 25 percent in the next 12 months, data compiled by Bloomberg show.

“Earnings is the only trigger that’s left as all the good stuff is out,” Ahuja said, referring to the budget that boosted spending on infrastructure and the reduction in interest rates. “We’re an expensive market right now” if earnings don’t grow as projected, he said.

Official data today showed wholesale-price index dropped 2.1 percent in February from a year ago. The median estimate of 27 economists was for a 0.8 percent drop.

The Reserve Bank of India has lowered interest rates twice this year as falling energy prices cooled inflation and helped shrink the country’s current-account deficit. The next monetary policy review is scheduled for April 7.

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