Mumbai: India’s stocks fell, dragging down the benchmark index to a two-month low amid signs that Europe’s debt crisis is worsening and as finance minister Pranab Mukherjee signalled concerns regarding inflation.
Bharat Heavy Electricals Ltd (Bhel), India’s largest maker of power equipment, tumbled 7%, the most in 30 months, after approving the sale of a 5% stake held by the government. State Bank of India (SBI), the biggest lender, sank to its lowest level in almost 12 months.
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Indian equities tracked the biggest drop in Asian stocks in two months after Fitch Ratings lowered Greece’s credit rating and Standard and Poor’s (S&P) said Italy’s rating was at risk. Inflation is a major challenge in the short term, Mukherjee told a banking industry meeting on 21 May in Mumbai.
The pressure of the interest-rate cycle going up and the stickiness of inflation continues to weigh on the markets, said Sadanand Shetty, a fund manager at Taurus Asset Management Co. Ltd. The global sell-off due to the European crisis has added to concerns.
The Bombay Stock Exchange (BSE) sensitive index lost 332.76 points, or 1.8%, to 17,993.33, its lowest close since 22 March. The gauge lost 1.1% last week after the biggest gasoline price increase since 2008 fanned concerns that inflation will accelerate.
The S&P CNX Nifty on the National Stock Exchange lost 1.8% to 5,386.55 and its May futures settled at 5,383.5. The BSE-200 Index fell 1.7%.
The Sensex has fallen 12% this year on concerns that higher borrowing costs will hurt corporate earnings. Stocks on the gauge are valued at an average 14.4 times estimated profit, down from 21.5 times in March 2010, last year’s high. The MSCI Emerging Markets Index trades at 10.9 times earnings.
All but one of the 30 Sensex stocks retreated. Bhel sank 7% to Rs 1,935.60, the biggest decline since 11 November, 2008. The company’s board approved the stake sale and a proposal to divide each share into five, according to an exchange filing. The government holds 68% of the company, according to data compiled by Bloomberg.
SBI tumbled 3% to Rs 2,252.85, the lowest price since 1 June, while ICICI Bank Ltd, the nation’s largest private lender, lost 3.6% to Rs 1,006.55. Reliance Infrastructure Ltd, owned by Anil Ambani, lost 3.57% to Rs 548.15. Sterlite Industries (India) Ltd dropped 3.03% to Rs 163.
The MSCI Asia Pacific Index fell 2.2%, heading for the biggest drop since 15 March. Fitch Ratings cut Greece three levels to B+, four steps below investment grade, from BB+. Fitch said even a soft restructuring of debt being studied by European Union policymakers would be considered a default.
Overseas investors sold a net Rs 7.1 crore of Indian stocks on 19 May, taking total outflows from equities this year to Rs 2,900 crore, according to data on the website of the Securities and Exchange Board of India.
Graphic by Paras Jain/Mint
Shikhar Balwani in Mumbai contributed to this story.