Indian Stocks Decline for Second Week on GST, Fed Rate Concerns

  • Foreigners have pulled $477 million this month before Fed meet
  • Industrial output probably rose 7.6% in October, survey shows

India’s benchmark stock gauge capped a second week of losses as investors awaited the Federal Reserve’s monetary-policy decision and progress on the passage of a goods-and-services tax bill in parliament.

The S&P BSE Sensex slid 0.8 percent at the close in Mumbai, capping a weekly decline of 2.3 percent. ICICI Bank Ltd. and HDFC Bank Ltd., India’s two largest private lenders, dropped at least 1.3 percent and were the biggest drags on the 30-stock gauge. Larsen & Toubro Ltd., the largest engineering company, dropped to its lowest level since May 2014. Tata Motors Ltd., owner of Jaguar Land Rover, slumped the most in two months.

Foreign funds have pulled $477 million from Indian equities this month before the Fed’s rate decision next week. Opposition lawmakers are protesting an Indian court order for the Congress party’s top leaders to testify in a corruption case, raising the risk of further delays to a tax bill that is the centerpiece of Prime Minister Narendra Modi’s reform push.

“India and all emerging markets are looking ahead to the Fed decision,” Vaibhav Sanghavi, the Mumbai-based managing director at Ambit Investment Advisors Pvt., said by e-mail. “In anticipation of this, we are seeing emerging-market outflows continuing. The non-functioning parliament is an added concern.” Sanghavi said he’s waiting for the Fed meeting outcome to decide on his funds allocation strategy.

International investors sold a net $68 million of Indian stocks on Dec. 9, paring this year’s inflow to $2.76 billion.

Prepared for Fed

Reserve Bank of India Governor Raghuram Rajan expects Federal Reserve policy makers to increase interest rates by as much as a quarter point next week. The central bank is looking at a 70 percent to 75 percent probability of a rate hike based on an assessment of market movements, Rajan told reporters on Friday after a central bank board meeting in Kolkata. India is ready for any eventuality and the central bank will determine how much liquidity to supply, he said.

Official data on Friday will probably show India’s industrial production expanded 7.6 percent in October from a year earlier, compared with 3.6 percent the previous month, according to the median of 27 estimates in a Bloomberg survey.

The Sensex has fallen 8.9 percent this year, heading for its first annual loss since 2011, and trades at 14.8 times its projected 12-month earnings. The MSCI Emerging Markets Index is valued at a multiple of 10.8.

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