Mumbai: The BSE Sensex tumbled the most in more than two weeks as the fall in European equities and US stock futures dragged down metal producers and industrials a day before expiry of the monthly derivative contracts.

Vedanta Ltd and Hindalco Industries Ltd, the nation’s largest producers of copper and aluminium, plunged the most in a month. Tata Motors Ltd slid to a one-month low, while Larsen & Toubro Ltd, the most valuable engineering firm, fell to its lowest price in nine months. Motherson Sumi Systems Ltd, a supplier to Volkswagen AG, capped its steepest two-day loss since October 2008. The rupee weakened the most in two weeks.

The S&P BSE Sensex tumbled 2.1% to 25,651.84 at the 3:30pm close, after climbing to a two-week high earlier. Twelve of the 30 stocks in the gauge lost at least 3%. The reversal was accompanied by a jump in the gauge’s 30-day historical volatility to its highest level since October 2013, with investors looking ahead to see whether the Reserve Bank of India will lower interest rates on 29 September to bolster the economy and spur a recovery in company earnings.

“While the fall in the European markets was the catalyst, the larger concern is the delay in the pick-up in the earnings momentum," Sanjay Sinha, founder of Mumbai-based Citrus Advisors Pvt. Ltd, said in a phone interview. “Futures and options expiry also kept people on tenterhooks."

The Sensex earnings climbed 1% in the June quarter, following a 45% drop in the prior three months, data compiled by Bloomberg show.

Inflation cools

RBI governor Raghuram Rajan left the main rate unchanged at 7.25% in August after three cuts in 2015 to meet his inflation target of 6% by January. Official data have shown that consumer price gains slowed to 3.66% last month as oil fell below $50 a barrel and food costs dropped.

Even so, foreigners have remained net sellers of Indian equities for a second month, unloading shares worth $337 million through 18 September, as conflicting signals from the Federal Reserve on when it will start raising interest rates curbed demand for riskier assets. They pulled $2.6 billion from local shares in August, the most since 2008.

“The rebound was not sustainable and overseas investors are still bearish," Siddarth Bhamre, head of derivatives at Angel Broking Ltd, said by phone from Mumbai. “Stocks are also pressured by selling in index futures before the derivatives expiry."

Volkswagen impact

Vedanta plunged 6.2%, taking this year’s loss to 57%. Hindalco tumbled 6.3%, the most since 24 August. Tata Motors slid 4.8% and Larsen & Toubro declined to its lowest level since 24 December.

Motherson Sumi slumped 7.7%, taking the two-day loss to 14.8%. The company could be adversely impacted if Volkswagen’s regulatory issues spill over to Europe, CLSA Asia- Pacific Markets said in a note on Monday.

The Sensex has retreated 6.7% this year and is valued at 14.6 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s multiple of 10.7. Bloomberg