Concern over surge in capital inflows making dollar stronger led to the fall.
India’s stocks fell the most in more than two weeks on concern a surge in foreign capital inflows will make the currency stronger and cut exporters’ competitiveness.
Infosys Technologies Ltd, the second-largest software exporter, retreated 1 per cent. Indian IT exporters derive at least 40 per cent of earnings from the US Unitech Ltd, India’s second-biggest developer, dropped 5.3 per cent, while DLF slid 3.7 per cent.
“A stronger rupee is a concern for exporters,” said Vetri Subramaniam, head of equity funds at Mumbai-based Religare Asset Management Co, which manages about $3 billion in assets. The local currency’s appreciation against the US dollar has been driven by capital inflows, he said.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, retreated 213.13, or 1.3 per cent, to 16,785.65, extending losses for a second day as it fell the most since November 3. The S&P CNX Nifty Index on the National Stock Exchange lost 1.3 per cent to 4,989. The BSE 200 Index fell 1.4 per cent to 2,088.66.
Infosys declined 1 per cent to Rs 2,409.95. Larger rival Tata Consultancy Services also slid 1 per cent, to Rs 679.9.
Unitech, India’s second-biggest developer, sank 5.3 per cent to Rs 81.65. DLF lost 3.7 per cent to Rs 366.25. Jaiprakash Associates Ltd, a builder of dams, roads and bridges dropped 4.6 per cent to Rs 226.55. Renu Karnad, Joint-Managing Director of Housing Development Finance Corp, the biggest mortgage lender, yesterday said she expects interest rates to rise, or “harden”, by the middle of next year.
Rupee’s advance
The rupee has climbed 6.7 per cent against the dollar in the past year, according to data compiled by Bloomberg. That reduces the value of sales abroad when converted to the local currency, while increasing the dollar price-tag of exporters’ products.
Foreign funds purchased a net Rs 73,250 crore ($15.77 billion) of Indian stocks this year, after being net sellers in 2008. Over the past month, Brazil and Taiwan imposed capital controls to check appreciation in their currencies.
Finance Secretary Ashok Chawla today said the government may take steps to slow funds’ entry.
“As the situation evolves we’ll see what needs to be done,” Chawla said in New Delhi.
Indian stock markets have been driven higher by foreign inflows and investors need to be “cautious” at these levels, U K Sinha, chairman and managing director of UTI Asset Management Co, said yesterday. The Sensex has gained 74 per cent this year, set for its best annual performance in 18 years.
‘Be cautious’
“There is no particular domestic news that has led the market to come to this level,” said Sinha. UTI, 26 per cent owned by T Rowe Price Group Inc, has $17 billion of assets. “It is primarily driven by foreign inflows. So, if it is only driven by liquidity, then one has to be cautious.”
State Bank of India Ltd, the nation’s biggest lender, fell 2 per cent to Rs 2,281.35. ICICI Bank Ltd, second largest, slid 2.1 per cent to Rs 886.45. HDFC Bank Ltd, the third largest, lost 1.7 per cent to Rs 1,719.55.
India’s central bank has been draining an average daily Rs 1 lakh crore in the past month, which indicates the amount of excess money held by commercial banks after meeting their lending requirements. The Reserve Bank of India on October 27 took the first step toward withdrawing its record monetary stimulus by ordering lenders to keep more cash in government bonds.
The government also has to reduce its spending to spur the economy “sooner or later” or excess liquidity may sow the “seeds of another crisis,” said Sinha.
