Indian Stocks Halt Two-Day Advance as Inflation Sparks Concern

  • Consumer and wholesale inflation both rise above estimates
  • Foreign investors net buyers for longest stretch since 2013

Indian stocks fell for the first time in three days amid concern quickening inflation will limit the central bank’s ability to cut borrowing costs.

Tata Motors Ltd., the maker of the world’s cheapest car, and Sun Pharmaceutical Industries Ltd., India’s most valuable drugmaker, were the biggest losers on the S&P BSE Sensex. Mortgage lender Housing Development Finance Corp. and Axis Bank Ltd. fell for the first time in three days. Infosys Ltd., the second-largest software services provider, dropped for a fourth day as it said it plans a “ramp-down” of about 3,000 employees after Royal Bank of Scotland Group Plc scrapped plans for a spinoff.

The Sensex resumed trading following a holiday, dropping 0.3 percent at the close in Mumbai. The gauge is trading near the most expensive level in 15 months. Indian consumer and wholesale inflation both accelerated more than estimated in July, according to data late Friday and Tuesday, narrowing the room for monetary easing as investors wait to see who will replace hawkish central bank Governor Raghuram Rajan next month.

“The markets are already high valued and even the slightest bad news can spark a selloff,” said Chokkalingam G., managing director at Mumbai-based Equinomics Research & Advisory Pvt. “The inflation numbers have created doubts in some investors’ minds that the rate-cut cycle may be a bit delayed. Some are thinking it’s prudent to take money off the table and lock in the gains."

Rajan, whose term ends on Sept. 4, kept the benchmark repurchase rate at a five-year low of 6.50 percent on Aug. 9. July’s inflation reading was the highest since August 2014.

Foreign funds have been net buyers of Indian stocks for 25 days through Thursday, the longest stretch in almost three years, as above-average rainfall after back-to-back droughts improves the outlook for company earnings and global central banks remain supportive of growth.

The Sensex has rallied 22 percent from a bear market reached in February. Twelve of the 22 companies on the index that have reported June-quarter results have met investor expectations.

Foreigners bought a net $96 million of local shares on Aug. 11, taking this year’s inflows to $5.4 billion, the most in Asia after Taiwan and South Korea. The Sensex is valued at 16.3 times projected 12-month profits, near the highest since April 2015. The MSCI Emerging Markets Index is valued at a multiple of 12.7.

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