Mumbai: India’s benchmark stock index was little changed amid concerns that the nation’s central bank may lift interest rates this week to control accelerating inflation, curbing growth. Reliance Industries Ltd (RIL) led the retreat.
RIL dropped the most in a month after it agreed to buy Bharti Enterprises Ltd’s stake in insurance ventures with Axa SA, and after Press Trust of India reported the country’s oil regulator declined to recognize as commercial three of the company’s gas finds.
Also see | Choppy Trade (PDF)
The Bombay Stock Exchange (BSE) sensitive index settled little changed at 18,266.03. The MSCI Asia Pacific Index dropped for a fourth day after data showed China’s lending slowed in May and Japan’s machinery orders fell in April, adding to signs that the global recovery is faltering.
There’s a whole lot of apprehension and nervousness as a result of which there’s not much activity, Mehraboon Jamshed Irani, head of private client group at Nirmal Bang Securities Pvt. Ltd in Mumbai, said by phone. Inflation, interest rates and a slowdown are the worrying factors.
About three-quarters of Indian business leaders surveyed from 75 companies are unhappy with the government’s handling of the economy and feel that corruption allegations will slow growth, according to a survey by The Economic Times and the Federation of Indian Chambers of Commerce and Industry published on Monday. Only 12% of respondents said they were happy with the government’s performance.
The S&P CNX Nifty on the National Stock Exchange (NSE) dropped 0.1% to 5,482.80.
Hindalco Industries Ltd, India’s biggest aluminium maker, fell 2.4% to Rs180.35. Jaiprakash Associates Ltd, a builder of dams and roads, added 3.4% to Rs84.25, paring this year’s decline to 20%. Bharti Airtel Ltd climbed 1% to Rs377.6.
India’s food inflation rate reached a eight-week high last week, adding pressure on the central bank to increase rates on 16 June a 10th time since last March, even as industrial output slows. Factory production in April grew 6.3% from a year ago after an 8.8% jump in March, the government said in a statement on 10 June.
The central bank may lift rates by a quarter percentage point, HSBC Holdings Plc, Nomura Holdings Inc. and Religare Capital Markets Ltd said.
Even a 25 basis points hike in repo rate will not be accepted well by the markets, said Dharmesh Pancholi, senior manager in equity advisory at Sharekhan Ltd in Mumbai. The move will restrict liquidity for the equity markets.
The Sensex, Asia’s worst performer this year, has fallen on concerns that higher borrowing costs will cool demand and cut company earnings. Stocks on the index are valued at an average 14.8 times estimated profit, down from 21.5 times last March. The MSCI Emerging Markets Index trades at 10.9 times earnings.
India’s economy may be overheating and further rate increases are warranted, New York University professor Nouriel Roubini told reporters in Singapore on Monday.
RIL, the nation’s most valuable company and owner of the world’s largest oil-refining complex, dropped 2% to Rs925.6, its biggest slide since 18 May. The company, with the highest weight on the Sensex, is seeking to expand in the financial services business.
The billion-dollar question is why RIL should be going into unrelated businesses and whether it is a sensible use of money, A.S. Thiyaga Rajan, a senior managing director at Aquarius Investment Advisors Pte. in Singapore, which manages about $350 million in Indian assets, said by phone.
RIL’s gas discoveries in the KG-D6 blocks in the Bay of Bengal, India’s largest gas field, were rejected because the deposits have low reserves, Press Trust of India reported on Sunday. RIL spokesman Manoj Warrier declined to comment on Monday.
A perfect storm of fiscal woe in the US, a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, Roubini said on 11 June.
There are already elements of fragility, Roubini said. Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier and bigger on debt, and all these problems may come to a head by 2013 at the latest.
The Organization for Economic Cooperation and Development will publish its Indian Economic Survey on Tuesday. India’s trade ministry will also report data on wholesale prices on Tuesday, and on 16 June, release food inflation data for the week ended 4 June.
Foreign investors bought a net Rs146 crore of Indian stocks on 9 June, taking investment in the nation’s equities this year to Rs672 crore, according to data on the website of the Securities and Exchange Board of India. Bloomberg
Santanu Chakraborty in Mumbai and Rakteem Katakey in New Delhi contributed to this story.