BLBG:India Stocks, Bonds Drop as Rupee Gains After Central Bank Increase Rates
India’s benchmark stock index plunged the most in five weeks, bonds sank, while the rupee climbed to a 12-week high after the central bank increased its benchmark rate by a more-than-estimated 0.5 percentage point to quell the highest inflation rate among major economies.
ICICI Bank Ltd., the country’s second-biggest lender, lost 2.9, pacing a drop among its peers. Tata Motors Ltd., the biggest truckmaker and owner of Jaguar Land Rover, slid 2.2 percent. DLF Ltd., the biggest developer, slumped 3.3 percent.
The Bombay Stock Exchange Sensitive Index, or Sensex, lost 328.71, or 1.7 percent, to 18,542.58 at 12:23 p.m. in Mumbai. That will be the steepest loss since June 20. The yield on the 7.8 percent government bond due April 2021 rose 12 basis points, or 0.12 percentage point, to 8.41 percent. That’s the biggest increase since April 2010. The rupee strengthened 0.3 percent to 44.2738 per dollar, after earlier touching 44.2650, the strongest level since May 2.
“It will have serious implications on economic growth, consumer demand and corporate earnings,” Aneesh Srivastava, who oversees $465 million as chief investment officer at IDBI Federal Life Insurance Co., said from Mumbai. “We will hold cash for now.”
The S&P CNX Nifty Index decreased 1.7 percent to 5,581.40. Its July futures traded at 5,582. The BSE 200 Index retreated 1.6 percent to 2,302.93.
The Reserve Bank of India increased the repurchase rate to 8 percent from 7.5 percent. None of the 22 economists surveyed by Bloomberg News predicted today’s decision. Twenty estimated a quarter-point rise, while the remainder expected no change.
‘Elevated’ Prices
Governor Duvvuri Subbarao moved even as counterparts in South Korea, Malaysia and Indonesia refrained from raising rates this month on concern Europe’s debt crisis and the slowing U.S. recovery will damp economic growth. Price increases in India may remain at an “elevated level for a few more months,” the central bank said today as it raised its inflation forecast to 7 percent by March 31 from 6 percent.
“Today’s policy action will reinforce the point that in the absence of complimentary policy responses on both demand and supply sides, stronger monetary policy actions are required,” Subbarao said in the statement.
ICICI Bank lost 2.9 percent to 1,044 rupees and its July futures traded at 1,044.40 rupees. Larger rival State Bank of India slid 2.1 percent to 2,460 rupees. Housing Development Finance Corp., the biggest mortgage lender, dropped 1.9 percent to 694.45 rupees. The Bombay Stock Exchange Bankex index sank 2.3 percent, set for its biggest slide since May 23.
India’s Inflation
India’s benchmark wholesale-price inflation, which quickened to 9.44 percent in June, may remain near 10 percent until November, according to HSBC Holdings Plc and Yes Bank Ltd. By comparison, consumer prices rose 6.7 percent in Brazil, 9.4 percent in Russia, 6.4 percent in China and 5 percent in South Africa.
The Sensex has lost 9.3 percent this year, the second-worst performer among key indexes in the world’s 10 biggest markets, amid rate increases. Companies on the measure are valued at 15 times estimated earnings, compared with a multiple of 11 for the MSCI Emerging Markets Index.
Three out of 10 Sensex companies that have posted earnings for the June quarter have lagged behind analyst estimates, compared with 33 percent that did so in the March quarter.
“The increase is much ahead of expectation; it is very disappointing for the markets,” said Vikas Khemani, president and head of institutional equities at Mumbai-based Edelweiss Securities Ltd. in Mumbai. “We expect a further 3 percent to 4 percent downside for stocks as they price in high interest rates. Higher rates will hurt growth across sectors.”
Tata Motors, Mahindra
Tata Motors, maker of the world’s cheapest car, the Nano, decreased 2.2 percent to 984.3 rupees. The shares have plunged 25 percent this year, making it the worst-performing automobile stock on the Sensex. Mahindra & Mahindra Ltd., the largest maker of sport-utility vehicles and tractors, fell 2.3 percent to 731.5 rupees.
DLF plunged 3.3 percent to 235.8 rupees. Reliance Infrastructure Ltd., the builder of a mass rapid transit system in Mumbai, slid 1.3 percent to 581.8 rupees, extending this year’s loss to 31 percent, the most among the 30 Sensex companies.
Overseas funds bought a net 5.25 billion rupees ($118.5 million) of Indian equities on July 22, raising total investment in stocks this year to 99.8 billion rupees, according to data on the website of the Securities and Exchange Board of India.
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
