Sensex drops on valuation; rupee at lowest level in 2013

Bloomberg/Mumbai

Indian stocks fell to a one-week low as some investors judged the rally that drove up the benchmark index to a more than two-year high last week as excessive.

The S&P BSE Sensex retreated 0.6% to 20,111.61, the lowest close since May 14. The measure completed a fifth week of gains on May 17, the longest such run since October. Tata Motors, the owner of Jaguar Land Rover luxury car brands, slumped to a two-week low. Maruti Suzuki India lost 2.6%, the most in two months.

Tata Motors slumped 3% to Rs292.95, its lowest close since May 6. Maruti Suzuki, India’s biggest carmaker by volume, dropped 2.6% to Rs1,697.40, the most since March 21. Mahindra & Mahindra, the largest producer of sport-utility vehicles, slid 1.4% to Rs987.75.

India’s record current-account gap, along with elevated consumer prices, has deterred the RBI from reducing rates at a faster pace even as economic growth slowed to a decade-low of 5% in the year ended March, according to an estimate from the government.

Official data last week showed the wholesale price index, a measure of inflation, rose the least in 41 months. That prompted RBI Governor Duvvuri Subbarao to say the data will be taken into account for the next policy decision, due to be announed on June 17.

Coal India, the world’s largest producer of the fuel, climbed 2.1% to Rs307.50, the most in a month, after posting a 90% increase in standalone quarterly profit on Monday. The company will report group results May 27.

NTPC, the country’s largest electricity producer, tumbled 4.5% to Rs152.3, the biggest decline since July 2009. State Bank of India, the largest lender, retreated 2.1% to Rs2,360.70.

Volume on the Sensex was 12% more than the 30-day average yesterday. The 50-stock CNX Nifty Index on the National Stock Exchange of India lost 0.7% to 6,114.10 while its May futures settled at 6,116.90.

Meanwhile, India’s rupee fell to the lowest level in 2013, erasing earlier gains, on speculation importers stepped up purchases of the dollar to benefit from the exchange rate before US Federal Reserve officials speak this week.

Chicago Federal Reserve President Charles Evans said on Monday the world’s largest economy is “improving quite a lot,” spurring concern the monetary authority will curb stimulus measures that have contributed to inflows into emerging markets. Fed Chairman Ben S Bernanke testifies on the economy in Congress today.

The rupee had strengthened earlier after foreign investors pumped money into the nation’s assets as inflation eased to a 41-month low.

“Markets await further cues from Bernanke’s testimony with regards to the Fed’s exit strategy,” L Subramanian, an analyst at ICICI Bank in Mumbai, wrote in a research report yesterday. “Dollar demand from oil importers” pressured the rupee, he wrote.

The rupee declined 0.5% to 55.4150 per dollar in Mumbai, the weakest level since November 27, according to data compiled by Bloomberg. It earlier rose as much as 0.3%. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 20 basis points, or 0.20 percentage point, to 8.28%.

Bernanke testifies today, less than a month before the policy-setting Federal Open Market Committee meets. The FOMC said May 1 that it will keep buying $85bn in bonds per month to bolster growth, and that it would increase or decrease the pace of purchases in response to the labor market and inflation.

Global funds bought a net $883mn of Indian shares last week and foreign holdings of local debt rose to a record $38bn on May 17, exchange data show. An auction of Rs55.33bn ($1bn) of sovereign debt-purchase permits was oversubscribed on Monday, according to two people with knowledge of the matter who asked not to be identified as they aren’t authorised to speak to the media.

Three-month onshore rupee forwards traded at 56.22 per dollar, compared with 56.04 on Monday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 56.13 versus 55.88. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.