Indian stocks tumbled the most in two weeks in late trade as investor attention turned to declines in global equities after the nation’s central bank Governor Raghuram Rajan left borrowing costs unchanged.
Tata Steel and Steel Authority of India, the largest producers, slumped the most in five months, while Vedanta, a copper producer, paced losses among metalmakers. Oil & Natural Gas Corp fell the most in four weeks. ICICI Bank capped its biggest four-day slide in more than four years and State Bank of India slid to a two-year low.
The S&P BSE Sensex tumbled 1.2% at the close in Mumbai, with bulk of the losses coming after European equities began trading.
The Stoxx Europe 600 Index retreated 1.6% after materials and energy companies led Asia’s benchmark equity index lower and US oil dropped as much as 3.9%. Reserve Bank of India Governor Raghuram Rajan kept the main rate at 6.75%, a decision forecast by 42 of 44 economists in a Bloomberg survey.
“There were no expectations on the rate cut by the RBI but what is happening on the global front is hurting our markets,” Nitasha Shankar, vice president for equity research at Yes Securities Ltd in Mumbai, said in an interview with Bloomberg TV India on Monday. “Most of the global markets have been trading on a very weak note, particularly with issues relating to China’s growth.”
Oil prices have erased last week’s rally on speculation US stockpiles are continuing to expand amid a global glut. Developing-nation stocks are retreating from the biggest four-day gain since October as optimism that global central banks from Japan to Europe are ready to do what’s needed to spur growth faded.
The Reserve Bank “continues to be accommodative,” Rajan said yesterday, while awaiting details of the government’s budget on February 29. While falling oil prices give him space to join Indonesia and Japan in easing further, adding to the five reductions made in 2015 may jeopardise his inflation target if the government reneges on its pledge to narrow the budget deficit.
Tata Steel tumbled 7.2%, the most since August 24. Steel Authority lost 7.9% to its lowest level since August 2013. Vedanta plunged 7.8%, taking its decline in the past 12 months to 67%. The S&P BSE India Metal Index retreated 4.3%, the most among the 13 sector indexes compiled by the BSE.
Oil & Natural Gas fell 3.8%, while Reliance Industries, owner of the world’s largest refining complex, decreased the most since January 20.
ICICI Bank retreated 3.1%. The stock has slumped 11% in the past four sessions, the steepest loss since the period ended Oct. 5, 2011. State Bank of India dropped for a third day to the lowest price since March 2014.
Overseas funds bought a net $60mn of Indian stocks on February 1, paring this year’s outflow to $1.7bn. They purchased $3.3bn of shares last year, the smallest in four years.
The Sensex has plunged 6% this year and trades at 15 times its projected 12-month earnings, compared with a multiple of 10.8 for the MSCI Emerging Markets Index.
Meanwhile the rupee dropped 0.2% to 67.98 a dollar, according to prices from local banks compiled by Bloomberg. The currency slid 2.4% in January.
Indian bonds fell, driving the 10-year yield to its highest since August, as the lack of specific measures to boost financial-system liquidity at the central bank’s monetary policy review left investors disappointed.
The yield on sovereign notes due May 2025 climbed six basis points to close at 7.85% in Mumbai, according to prices from the Reserve Bank of India’s trading system. It had dropped to 7.78% before the authority’s decision to leave the benchmark repurchase rate at 6.75%, a move estimated by most economists in a Bloomberg survey. A key gauge of local equities declined the most in two weeks and the rupee weakened.
Short-term borrowing costs in India have risen as a selloff in emerging markets drives outflows from local stocks. The RBI’s suspected intervention in the currency market to support the rupee, which last month retreated the most since August has impacted the availability of funds, according to DBS Bank. The shortage of cash has prompted the central bank to conduct open-market purchases of debt.
In yesterday’s statement, the RBI stopped short of saying that it will continue with daily variable-rate repurchase and reverse-repurchase agreements to smooth liquidity.
“The lack of liquidity measures has impacted market sentiment,” said Harish Agarwal, a Mumbai-based fixed-income trader at FirstRand. “There’s a sense of uncertainty about future rate cuts as the RBI links them to the government’s success in keeping the fiscal deficit under control.”
Swap traders pared expectations for further monetary policy easing. The cost to lock in interest rates for a year jumped eight basis points, the most since April, to 6.97%, according to data compiled by Bloomberg.
Structural reforms in the government’s February 29 budget “that boost growth while controlling spending will create more space for monetary policy to support growth,” according to the central bank’s statement. Yesterday’s rate decision was predicted by 42 of 44 economists in a Bloomberg survey.
Overseas funds have withdrawn a net $1.7bn from Indian stocks this year, data compiled by Bloomberg show. The overnight call-money rate, a gauge of interbank funding availability, averaged 6.61% in January, up from 6.37% in December, data compiled by Bloomberg show.
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