Mumbai: The benchmark stock index, Sensex, sank to a 28-month low as overseas investors pared holdings of the nation’s equities on concern a falling rupee, something that will compound the effects of slowing economic growth on corporate earnings.
While Reliance Industries Ltd, India’s largest company, fell to a 33-month low, Larsen and Toubro Ltd, the biggest engineering company, slumped to the lowest level in more than two and a half years.
Slide show: The BSE building in Mumbai. The Sensex lost 1.3% to end at 15,175.08 on Tuesday, the lowest close since August 2009. By Abhijit Bhatlekar/Mint
Foreign investors pulled out $363 million from local equities in seven days through Monday, data from the regulator show.
The Sensex lost 1.3% to 15,175.08 as of the 3.30 pm close, the lowest since August 2009. The gauge has lost 26% this year, the most among major Asian markets, as record borrowing costs, high inflation and a weak rupee combined with Europe’s crisis contributed to slow economic growth.
Foreign funds have withdrawn $472 million this year, compared with a record inflow of $29.4 billion in 2010.
Indian markets tumbled on Tuesday even as their counterparts in Europe and Asia gained. Mint’s Krishna Merchant tells us why
“Sustained selling by foreign investors, spurred by weak domestic economic fundamentals, is creating panic,” said Deven Choksey, managing director of KR Choksey Shares and Securities in Mumbai. “Going forward, rupee depreciation and expanding fiscal deficit will put earnings under pressure,” he added.
The finance ministry, in a 9 December report, said that low tax collections in a slowing economy and delayed plans to sell stakes in state companies may mean the government may fail to meet its goal of narrowing the budget deficit to a four-year low of 4.6% of gross domestic product (GDP) in the year ending 31 March.
The economy may expand 7.25% to 7.75% in the financial year ending in March, less than the 9% estimated in February, the report showed.
The economy grew 6.9% in the September quarter from a year ago, the least in two years, and factory output fell 5.1% in October from a year ago, the first contraction since 2009, as the highest borrowing costs in three years damped demand, government data show.
The cabinet approved the food security Bill on 18 December to supply the nation’s poor food grain at discounted rates. The policy will inflate food subsidies by Rs 32,000 crore ($6 billion) to Rs 95,000 crore, according to the food ministry.
“Controlling fiscal deficit is a challenge due to high commodity prices, including oil, and some of the government’s social initiatives,”? Alroy Lobo, chief strategist and global head of equities at Kotak Mahindra Asset Management Co Ltd, which has about $6.1 billion in assets, told Bloomberg UTV. “This will keep interest rates levels high in the economy,” he added.
The rupee closed little changed at 52.89 per dollar from 52.885 on Monday after falling 0.4% intraday. It reached a record low of 54.3050 on 15 December.
A weak rupee boosts prices in India, a country that buys 80% of its energy, and increases repayment costs for companies holding foreign currency debt.
“With the Reserve Bank of India hamstrung by stubbornly strong non-food core inflation, a violent sell-off down to the 11,000-12,000 levels on the Sensex, combined with a further depreciation in the rupee to the 60-a-dollar level, now appears quite possible,” Christopher Wood, equity strategist at CLSA Asia-Pacific Markets, wrote in an 18 December note.
The Sensex trades at 13.2 times estimated earnings, down from 21.5 times in March 2010 and the lowest since April 2009. The Morgan Stanley Capital International (MSCI) Emerging Markets Index is valued at 10 times.
The S&P CNX Nifty Index on the National Stock Exchange of India Ltd lost 1.5% to 4,544.20. The BSE-200 Index fell 1.6% to 1,823.81, its lowest level since August 2009.
Shares of as many as 170 companies in the BSE-500 Index closed at their lowest level in at least 52 weeks. The measure tumbled to a 28-month low, data compiled by Bloomberg show.
Among Sensex companies, Reliance Industries Ltd lost 3% to Rs 713.45, the lowest price since March 20, 2009. Larsen and Toubro Ltd slumped 5.3% to Rs 977.7, the lowest since May 15, 2009. Tata Motors Ltd, owner of Jaguar Land Rover, slid for a fourth time in five days, losing 2.7% to Rs 174.9. Jaiprakash Associates Ltd, a builder of dams and bridges, sank 7.4% to Rs 53.45, the lowest since March 30, 2009. Tata Steel Ltd. dropped 5.7% to Rs 342.75, the lowest since July 2009, and JSW Steel Ltd. lost 4.9% to Rs 469.15, the lowest price since May 2009. ITC Ltd, Asia’s second largest cigarette maker, rose for a second day, gaining 1% to Rs 199.4. HDFC Bank Ltd, India’s second largest private lender, rose 2% to Rs 414.2, ending four straight days of losses.