Indian Stocks Tumble Most in Asia as Budget Session Starts

  • Lenders lead losses on Sensex; ITC slides to three-year low
  • Trading may be volatile before derivatives expiry on Thursday

Indian stocks tumbled the most in Asia as investors held off taking new bets before next week’s federal budget and the expiry of monthly derivatives contracts on Thursday.

State Bank of India and ICICI Bank Ltd. were among the biggest decliners on the S&P BSE Sensex. Coal India Ltd., the largest miner of the fuel, dropped to a one-month low. NTPC Ltd. slid for a second day as the government sold shares in the largest power utility at a discount. ITC Ltd., the biggest cigarette company, slid to a three-year low.

The Sensex lost 1.6 percent at the close, with 28 of the 30 stocks on the gauge posting losses. The drop ended a four-day, 2.6 percent rally. The budget session of the parliament began Tuesday and investors are focusing on Prime Minister Narendra Modi’s ability to pass laws after a bill to introduce a nationwide sales tax was blocked by opposition parties in previous sessions.

“There is fear and anxiety around the budget," Chokkalingam G., managing director at Equinomics Research & Advisory Pvt. in Mumbai, said in a phone interview. “The dilemma for the government is whether to keep the fiscal deficit in check or boost growth.” He is advising clients to hold off on fresh investments this week.

Budget Deficit

Investors are concerned that a proposed increase in salaries for millions of civil servants and demands for more rural support will derail Modi’s plans to narrow the budget deficit. Central bank Governor Raghuram Rajan kept interest rates unchanged this month and said he’d watch inflation and the budget before adding to last year’s four rate cuts. Consumer inflation accelerated to a 17-month high in January.

The government must step up public investment to support the economic recovery even if it comes at the cost of a slightly wider fiscal gap, India’s largest industry body has said. Modi’s government will raise its deficit target for the year starting April 1 to 3.7 percent of GDP from 3.5 percent projected previously, according to predictions from Standard Chartered Plc and Nomura Holdings Inc.

Weak Metrics

India’s fiscal position will remain weaker in the near term than its peers due to relatively high state and central government deficits and debt, Moody’s Investors Service said in a note on Tuesday.

The NSE Nifty 50 Index lost 1.7 percent, with 48 stocks closing in the red. Traders rolled over 39 percent of the index-futures contracts to the March series that starts Friday, the data show. Derivatives contracts expire on the last Thursday of every month.

“Traders are adding fresh short positions ahead of the expiry,” Rajendra Wadher, director at PRB Securities Ltd., said by phone. “Investors are selling or staying away, waiting for clarity to emerge from the budget.”

State Bank of India tumbled 3.9 percent, taking this year’s loss to 29 percent. ICICI Bank lost decreased 3.3 percent. The lender has lost 27 percent of its value in 2016. HDFC Bank Ltd., the most valuable lender, fell 1.9 percent. Punjab National Bank tumbled 3.8 percent after the exchange said it would be excluded from the Nifty 50 index from April 1.

Coal India plunged 4.1 percent to its lowest level since Jan. 22. Bajaj Auto Ltd., a maker of motorcyles, lost the most since Nov. 2. NTPC tumbled 2.5 percent. ITC slid 2 percent.

The Sensex has retreated 10.4 percent this year and trades at 14.6 times its estimated 12-month earnings, versus a multiple of 11 for the MSCI Emerging Markets Index.

Overseas funds sold a net $41 million of Indian stocks on Feb. 22, taking this year’s outflow to $2.4 billion.

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