Sensex extends worst drop in 3 months

India's benchmark stock index slid to a two-week low in volatile trading, as software exporters countered gains in metal producers.

Tata Consultancy Services fell to a one-month low, dragging a gauge of technology companies to its lowest level in three weeks. Tata Steel jumped the most in seven months, sending an index of metal makers to a two-month high. Oil and Natural Gas Corporation, the largest state explorer, and GAIL India, a supplier of natural gas, were among the top gainers on the Sensex.

The Sensex lost 0.2 per cent at the close, after changing direction five times even as the S&P BSE 100 Index ended little changed. The benchmark tumbled 2.1 per cent on Monday, as concern over a slowing Chinese economy and tension in the West Asia spurred a sell-off in Asian equities and currencies. Foreign investors bought $42 million of Indian shares on Friday, adding to last year's inflows of $3.3 billion, which were the smallest since 2011.

"India will be affected by weak inflows to emerging markets," U R Bhat, director at the Indian unit of Dalton Strategic Partnership, a UK-based investment management company, said in an interview with Bloomberg TV India on Tuesday. "Global volatility will provide long-term investors an opportunity to bet on Indian stocks."

The worst-performing stocks in India last year are about to make a comeback in 2016, according to Ashburton Investments and Birla Sunlife Asset Management. They favour large-cap shares over smaller peers due to attractive valuations and expectations foreign inflows will pick up. Global funds have been net buyers of local shares in nine of the past 10 trading sessions, data compiled by Bloomberg show.

 

Tata Steel and Steel Authority of India surged at least 6.5 percent, while JSW Steel and Jindal Steel & Power gained more than three per cent each. The rally was fuelled by speculation that the nation will step up curbs on steel imports to fight a rising tide of cheap shipments, according to IDBI Capital Market Services.

Tata Steel was the second-worst performer on the Sensex in 2015, while Steel Authority of India slumped 41 per cent, the most in four years, amid a tumble in global commodity prices.

"Some investors are finding value in these highly oversold stocks even as near-term concerns remain," A K Prabhakar, head of research at IDBI Capital, said over phone.

The Sensex slid five per cent in 2015 after rising 30 percent in 2014, as the euphoria over Prime Minister Narendra Modi's economic agenda waned and concern grew that tighter US monetary policy will curb the appeal of higher returns offered in emerging markets.

The Sensex trades at 15.3 times projected 12-month earnings. The MSCI Emerging Markets Index is valued at a multiple of 10.8.