Indian Stocks Decline as Global Selloff Spreads Amid Oil's Rout

  • Bharat Heavy, NTPC, Tata Steel drag Sensex to two-week low
  • Crompton Greaves slumps most in 25 years, drags mid-cap stocks

Indian stocks retreated to a two-week low in late trade as Asian equities plunged after a slump in oil prices increased investor anxiety about the global economic outlook.

Bharat Heavy Electricals Ltd. tumbled to more than a two-year low, while NTPC Ltd., the largest power utility, slid to a three-month low. Tata Steel Ltd. capped its steepest five-day loss in five months. State Bank of India and ICICI Bank Ltd. approached two-year lows. Crompton Greaves Ltd. paced losses among the small- and medium-sized companies after the electric-equipment maker plunged the most in 25 years.

The S&P BSE Sensex dropped 1.3 percent at the close, with bulk of the selloff coming in the last half-hour of trade. The gauge has lost 2.6 percent this week as the Reserve Bank of India left interest rates unchanged Tuesday, with Governor Raghuram Rajan saying the bank’s next move will be based on the government’s budget as well as inflation. Stocks retreated in Europe and Asia as earnings from Novo Nordisk A/S and Swatch Group AG to Nomura Holdings Inc. missed estimates and oil prices slide below $30 a barrel.

“Global investors would like to see India starting to stand up and deliver on the hopes we’ve had for a long time,” Andrew Holland, chief executive officer of Ambit Investment Advisors Pvt. in Mumbai, said in an interview with Bloomberg TV India Wednesday. Indian stocks “have come off due to selling by foreigners. The budget is a great opportunity to attract overseas investors. The market will like a budget that brings in a mix of structural reforms and pushes up rural demand without messing up the fiscal math,” he said.

Fund Redemptions

Mid-cap stocks declined for a second day as concern over higher valuation deepened amid the rout in their larger counterparts. The Sensex trades at 18.1 times reported earnings, while the mid-cap gauge is valued at 24.6 times. The small-cap index has a multiple of 36, data compiled by Bloomberg show.

“We expect the correction in mid caps to continue as their valuation is still very high compared with the large caps,” Jitendra Panda, the chief executive officer at Peerless Securities Ltd., said by phone from Kolkata. “Local funds are facing redemption pressure after yesterday’s fall in this space.”

As China’s slowdown rattles global investors, India is taking the mantle as the world’s fastest-growing large economy. Yet, as Rajan pointed out on Tuesday, not all is well even after 125 basis points of cuts in the past 13 months: India is growing below its medium-term potential, and structural reforms are needed to boost growth without increasing spending and stoking inflation.

Capital Outflows

The Sensex fell to its lowest level since May 2014 on Jan. 21, coming within 1 percentage point of a bear market, as global funds pulled $1.6 billion from local stocks amid turmoil in global markets. The selloff has dragged 23 of the 50 stocks on the NSE Nifty Index to 52-week lows this year. The Nifty slid 1.3 percent to 7,361.8, a two-week low.

The rupee has slid 2.9 percent this year and is trading near its record low of 68.845 reached in August 2013. The yield on the sovereign bond due 2025 has risen to 7.85 percent from 7.76 percent since Jan. 1.

Rajan said he’s going to look at the "entire package" that Finance Minister Arun Jaitley presents on Feb. 29, including the quality of spending. He told reporters he wants to see policies that relieve supply bottlenecks in education, health care and food management to smooth out price spikes and allow for a sustainable lowering of inflation.

Fiscal Slippage

Jaitley may have to either a proposed $15 billion rise in government staff salaries, slash subsidies or cut infrastructure spending to hit the planned budget gap of 3.5 percent of gross domestic product next year.

“I don’t think the markets would be worried if the government slips just a little bit on the fiscal deficit if the money is spend on boosting infrastructure, so long as they don’t go mad with the math,” Ambit’s Holland said.

Bharat Heavy lost 4.9 percent, the worst performance on the Sensex, while NTPC slid 4 percent. Tata Steel tumbled 3.2 percent, taking the five-day loss to 13 percent.

State Bank slid to its lowest level since March 2014, and ICICI Bank declined to its lowest close since February 2014.

Hindalco Industries Ltd., India’s second-biggest aluminum producer, slumped to its lowest price since May 2009. Bigger rival Vedanta Ltd. fell to a nine-year low. The companies lost at least half their market values last year amid a collapse in metal prices.

Oil & Natural Gas Corp. capped its biggest three-day loss since Dec. 8. The stock has slid 12 percent since Jan. 1, after slumping 29 percent in 2015.

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