Mumbai: India’s benchmark stock index fell the most in a week as an oil price rally stoked inflation concerns and an ally of Prime Minister Manmohan Singh vowed to pull out of his ruling coalition.
State Bank of India (SBI), the nation’s biggest, lost the most in more than a week. Oil gained a second day, rising above $105 per barrel in New York, as unrest in Libya renewed concern that supply disruptions may spread. The Dravida Munnetra Kazhagam (DMK) said on March 5 it would end support for Singh’s National Congress party-led government over a disagreement on seats to be contested in a regional election.
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Tata Motors Ltd, the biggest truck maker, dropped 4.1%.
The political uncertainty has added to the existing uncertainty of the markets, said Sadanand Shetty, a Mumbai- based fund manager at Taurus Asset Management Co. Ltd, which manages about $665 million (Rs2,999 crore). Inflation, interest rates and oil price concerns are weighing on investors’ sentiment, he said.
The Bombay Stock Exchange’s sensitive index, or Sensex, lost 263.78 points, or 1.4%, to 18,222.67, the most since 24 February. The S&P CNX Nifty on the National Stock Exchange retreated 1.4% to 5,463.15, while its April futures settled at 5,500.40. The BSE 200 Index slid 1.3% to 2,236.09.
State Bank decreased 3% to 2,624.15, its steepest fall since 24 February. Larsen and Toubro Ltd, the biggest engineering company, declined 2.5% to Rs1,570.05, while its April futures settled at Rs1,578.5.
The Sensex has lost 11% this year, the worst performer in Asia among benchmark indexes tracked by Bloomberg, as the Reserve Bank of India (RBI) raised interest rates to stem inflation worsened by a rally in the price of oil. Sensex companies trade at an average 17.1 times estimated profit, down from a high of about 21 times a year ago, data compiled by Bloomberg show.
Tata Motors slid 4.1% to Rs1,127.95, while its April futures settled at Rs1,116.95. Mahindra and Mahindra Ltd, the largest maker of sport utility vehicles and tractors, declined 2.1% to Rs661.75. Maruti Suzuki India Ltd, the biggest car maker, decreased 3.9% to Rs1,260.85, while its April futures traded at Rs1,236.90.
Higher oil prices are a serious issue, finance minister Pranab Mukherjee said on March 3. India gets about three quarters of its oil from abroad. Oil futures for April delivery has risen 6.7% last week, the third straight advance.
Crude oil price is one of the biggest risks the Indian markets is seeing and no one can guess whether crude will stay where it is, or hit $125 or $135 per barrel, Pratik Gupta, head of equities at Deutsche Equities India Pvt. Ltd, said on Monday.
India’s benchmark wholesale price inflation rate averaged 9.4% in the nine months through December, the most in the past decade, the finance ministry said in a report on 25 February. The gauge rose 8.23% in January. RBI has raised borrowing costs seven times in the past year to moderate price pressures in the world’s second most populous nation.
Singh is trying to contain the pace of price increases, which are eroding purchasing power, as his Congress party faces five state elections this year.
DB Realty Ltd., a developer, slid 4.1% to Rs112.9 after saying Shahid Balwa resigned as managing director amid a probe into the second-generation (2G) telecom licence that led to his arrest by the Central Bureau of Investigation last month. Unitech Ltd, the second biggest developer, dropped 2.9% to Rs35.45, extending this year’s loss to 47%.
Overseas investors bought a net Rs281 crore of Indian equities on 3 March, reducing their outflow from equities this year to Rs8,720 crore, according to data on the website of the Securities and Exchange Board of India.
Weiyi Lim in Singapore and Ameya Karve in Mumbai contributed to this story.
Graphic by Naveen Kumar Saini/Mint.