India stocks sink most in 14 months on rupee weakness, GDP data

A currency trader works in front of a screen showing the value of the Indian Rupee against the US Dollar on the floor of a trading firm in Mumbai yesterday. The partially convertible rupee hit an 11-month low of 56.60 per US dollar yesterday as hopes of a rate cut in June reduced after the RBI governor’s inflation comments and after the economy in January-March grew in line with forecasts.

Bloomberg/Mumbai

Indian stocks plunged the most in 14 months on speculation a weakening currency may stoke inflation and prompt overseas investors to pare holdings of local shares.

The S&P BSE Sensex sank 2.3% to 19,760.30 at the close in Mumbai, the most since March 22, 2012. That cut its gain this month to 1.3%. Drugmaker Sun Pharmaceutical Industries and cigarette maker ITC fell from record highs. Mortgage lender Housing Development Finance Corp sank 3.9%.

Reliance Industries, owner of the world’s largest refining complex, sank 3.6% to Rs806.30, and Bharti Airtel, the largest Indian mobile-phone operator, tumbled 4.3% to Rs301.95.

The rupee weakened 4.8% this month to 56.5050 per dollar in Mumbai, the biggest loss since May 2012, according to data compiled by Bloomberg. The currency dropped 0.2% yesterday, touching the weakest level since June 28, 2012, and fell 1.5% this week. The Dollar Index, which tracks the greenback against six major trading partners, rose 1.8% this month.

Global funds have been net sellers of rupee-denominated bonds each day since holdings touched a record $38.5bn on May 21, exchange data show, while they have bought a net $15.2bn of local shares this year.

Asia’s third-largest economy should be prepared for the probability of outflows in 2014 as developed nations consider tapering stimulus measures, Reserve Bank of India Governor Duvvuri Subbarao said this month.

“The rupee’s depreciation is a big concern and it set off a panic reaction,” Chokkalingam G, chief investment officer at Centrum Wealth Management, said in a phone interview from Mumbai. “There’s concern foreign investors will start exiting the market if the rupee continues to weaken.”

The Sensex has slumped 2.6% since climbing to its highest level since January 5, 2011, on May 17. The measure has still advanced 1.7% in 2013 as monetary easing by global central banks boosted flows into emerging markets. Foreigners bought a net $3.9bn of local stocks this month through May 30, the highest since February when they purchased a net $4.1bn, data compiled by Bloomberg show.

Sun Pharmaceutical slid 2.8% to Rs1,044.10. The stock has surged 42% this year, the most on the Sensex. ITC lost 2.6% to Rs339.90 and was the biggest drag on the gauge. Tractor maker Mahindra & Mahindra lost 3.7% to Rs967.55 after closing at a record on Thursday.

The Sensex is valued at 13.6 times projected 12-month profits, compared with the MSCI Emerging Markets Index’s 10.3 times. Volume on the gauge was 8% lower than the 30-day average. The CNX Nifty Index on the National Stock Exchange of India lost 2.3% to 5,985.95. Its June futures settled at 6,000.05. India VIX surged 5.9% to 16.99.

India’s gross domestic product grew a decade-low 5% in the 12 months ended March 31, below the 10-year average of about 8%, official data showed yesterday. The GDP expanded 4.8% in the January to March quarter from a year earlier, matching the median of 33 estimates in a Bloomberg survey.

“GDP numbers told us there’s not much to look forward to and growth is likely to remain sluggish,” Tirthankar Patnaik, a Mumbai-based strategist with Religare Capital Markets, said on Bloomberg TV India. “We were getting cautious because the currency and stocks were not moving in tandem.”

The rupee has weakened 4.8% this month, its biggest drop since May 2012, according to data compiled by Bloomberg. The currency retreated 0.2% yesterday, touching the weakest level since June 28, 2012, and fell 1.5% this week. The Dollar Index, which tracks the greenback against six major trading partners, rose 1.8% this month.

Fed Chairman Ben S Bernanke said last week the central bank may cut the pace of debt purchases if there are signs of sustained improvement in the US economy.

“Market sentiment is firmly on Fed tapering and positive economic momentum” in the US, Wee-Khoon Chong, a strategist at Societe Generale in Hong Kong, wrote in an e-mail today. “India’s current-account deficit remains a big issue.”

The central bank may have sold dollars around 56.75 to curb the rupee’s drop, according to J Moses Harding, executive vice president at IndusInd Bank in Mumbai. This should encourage exporters to convert overseas earnings, he said.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, rose 95 basis points, or 0.95 percentage point, this month to 9.26%.

The surge that propelled the Dollar Index to its highest level since 2010 is masking the greenback’s 30-year low versus emerging-market currencies. India’s real-effective exchange rate, which tracks the rupee against the currencies of six major trading partners, was 106.29 in April, RBI data show. A number above 100 shows appreciation.

 “So do be careful in talking about currency weakness just against one cross rate, which is the US dollar,” Adrian Mowat, chief Asian and emerging-market strategist at JPMorgan Chase & Co, told Bloomberg TV India on Thursday. “We have entered a strong dollar environment that tends to be a difficult environment for emerging-market currencies.”

Three-month onshore rupee forwards traded at 57.42 per dollar, compared with 54.84 on April 30, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 57.56 versus 54.54 a month ago.