Sensex drops, Asia markets close mixed

Bloomberg, AFP/Mumbai/Tokyo

Indian stocks declined yesterday as the rupee weakened the most in a week before the Federal Reserve policy meeting, and as foreigners sold local shares.

The S&P BSE Sensex retreated 0.5% to 19,223.28 at the close in Mumbai, ending a two-day, 2.7% climb.

The 50-stock CNX Nifty index on the National Stock Exchange of India Ltd decreased 0.6% to 5,813.60.

India’s rupee weakened on concern the US central bank will signal a reduction in the asset purchases that have helped increase flows to emerging markets. Foreigners sold a net $431mn of local shares last week, the most since November 2011 and the first week of reductions since April, data compiled by Bloomberg show. The Sensex has slid 4.2% since May 22, when Fed chairman Ben S Bernanke said the authority may taper the stimulus efforts if the world’s largest economy improves.

“All eyes are on the Fed meeting today (Tuesday) as winding down of stimulus will restrict inflows from overseas,” Deven Choksey, managing director at KR Choksey Shares & Securities, said by phone from Mumbai.

Overseas funds have bought a net $14.9bn of Indian shares so far this year, the highest after Japan among Asian markets tracked by Bloomberg, as easing by global central banks stoked demand for riskier assets. The inflows helped the Sensex climb to a two-year high on May 17.

A plunge in the rupee this month is threatening to stoke import costs in a country that purchases about 80% of its oil from abroad, fanning the second-highest inflation rate in the Group of 20 nations. The Reserve Bank of India on Monday left the repurchase rate unchanged for the first time in four reviews and said it would need proof of a “durable” cooling in inflation before lowering rates again.

The Sensex has lost 1.1% this year and trades at 13.2 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 9.8 times. The 50-day volatility on the Indian index climbed to 16.8, the highest since May 2012.

Asian markets were mixed yesterday, with traders sitting on the sidelines as they await the Fed plans.

Tokyo stocks dropped 0.20%, or 25.84 points, to 13,007.28, after jumping 2.73% the day before.

Sydney fell 0.24%, or 11.5 points, to 4,814.4. But Seoul rose 0.93%, or 17.52 points, to 1,900.62.

Hong Kong finished flat, edging down 0.02 points to 21225.88 while Shanghai was up 0.14%, or 3.07 points, at 2,159.29.

In other markets, Kuala Lumpur rose 0.11%, or 1.88 points, to 1,774.05; Bangkok lost 2.97%, or 43.62 points, to 1,427.42; Jakarta ended up 1.38%, or 65.95 points, at 4,840.45; Singapore was up 1.45%, or 46.11 points to 3,229.55; Taiwan rose 0.23%, or 18.13 points, to 8,011.02; Manila closed 2.83% higher, gaining 179.36 points to close at 6,518.77; while Wellington rose 0.33%, or 14.47 points, to 4462.10.

Markets have been in turmoil for weeks as investors speculate on whether the Federal Reserve will continue with its $85bn-a-month quantitative easing programme, which has helped fuel a global stocks rally.

The Fed is expected to announce today after a two-day meeting when or if it intends to begin reeling in the huge bond-buying scheme as the economy shows signs of picking up.

A mixed bag of US data recently has pointed to an uncertain recovery with many analysts predicting the Fed would hold off cutting back on the purchases for the time being.

There were, however, some signs of strength in the world’s biggest economy on Monday with a confidence index of national home builders hitting a seven-year high as they begin to see demand for new homes picking up pace.