Tuesday, 16 July 2013

Indian Stocks Drop as Banks Sink Most Since 2009 on RBI Decision

By Rajhkumar K Shaaw - Jul 16, 2013 11:00 AM GMT+0400
Indian (SENSEX) stocks tumbled the most in two weeks after the Reserve Bank of India raised two interest rates yesterday, stepping up efforts to aid the rupee after its plunge to a record low.
The S&P BSE Sensex slid 1.2 percent to 19,795.08 at 12:24 p.m. in Mumbai, halting three days of gains. State Bank of India dropped the most since May, leading its peers lower. The S&P BSE Bankex, a gauge of 13 lenders, sank 4.6 percent, headed for its sharpest fall since July 2009. Oil & Natural Gas Corp. (ONGC), the nation’s largest explorer, advanced 1.9 percent.
India’s Nifty Futures Decline as Central Bank Increases Rates
A man with an umbrella looks up at an electronic screen displaying stock figures at the Bombay Stock Exchange (BSE) in Mumbai. Photographer: Adeel Halim/Bloomberg
July 16 (Bloomberg) -- Jahangir Aziz, chief India economist at JP Morgan Securities Inc., talks about the nation's central bank monetary policy and its impact on the economy and currency. India stepped up efforts to help the rupee after its plunge to a record low, raising two interest rates yesterday in a move that escalates a tightening in liquidity across most of the biggest emerging markets. Aziz speaks from Washington with Rishaad Salamat on Bloomberg Television's "On the Move." (Source: Bloomberg)
The central bank increased the marginal standing facility and the bank rate to 10.25 percent from 8.25 percent, and said it plans to sell $2 billion of government bonds on July 18. The rupee has declined 7.3 percent this year, hurt by the slowest economic growth in a decade and a record current-account gap.
The tightening “will be negative for the equity markets in the near-term as the market was looking for easy monetary policy going forward,” Hemant Kanawala, head of equities at Kotak Mahindra Old Mutual Life Insurance Ltd., which has $2 billion in assets, said in an interview to Bloomberg TV India today. “The currency is one of the main concerns of the RBI.”
State Bank sank 4.4 percent to 1,828.70 rupees. HDFC Bank Ltd. (HDFCB), India’s biggest lender by value, dropped 2.5 percent to 678.2 rupees. ICICI Bank Ltd. (ICICIBC), the second-biggest, tumbled 5.4 percent to 1,005.3 rupees. Housing Development Finance Corp. (HDFC), India’s biggest mortgage lender, slumped 4.4 percent to 810.8 rupees. The S&P BSE Bankex plunged the most among 13 sector indexes compiled by the BSE Ltd.

Bad Loans

Some company loans may turn bad faster than expected after the RBI’s moves, hurting banks with high loan-deposit ratios, Credit Suisse Group AG analysts led by Ashish Gupta wrote in a report today. IndusInd Bank Ltd. and Yes Bank Ltd., which are not part of the Sensex, will be the worst affected, they wrote.
“Lenders will now have to raise deposit rates or borrow funds from money markets at higher rates,” Vishal Narnolia, a Mumbai-based banking analyst with SMC Global Securities Ltd., said by telephone. “The higher cost of funds cannot be fully passed on, as lending growth is already at a three-year low.”
Credit Suisse cut IndusInd Bank’s (IIB) share-price estimate 11 percent to 416 rupees. The stock plunged 6.3 percent to 474.65 rupees, headed for the sharpest fall since December 2010.
Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker, retreated 2.8 percent to 1,405.5 rupees, a record 11th day of losses. Tata Motors Ltd. (TTMT), owner of Jaguar Land Rover, slid 1.5 percent to 284.25 rupees. Bajaj Auto Ltd., the second-biggest two-wheeler maker, lost 1.1 percent to 1,881.2 rupees. High interest rates can reduce automobile sales in a country where almost 80 percent of vehicle purchases are funded through loans.

Rupee, Bonds

The rupee strengthened 0.9 percent to 59.3825 per dollar at 12:26 p.m. in Mumbai. The currency, which fell to a record 61.2125 on July 8 after the U.S. signaled it may pare stimulus this year, touched 59.1250, the strongest level since July 1. The yield on India’s 8.15 percent bonds due June 2022 jumped 42 basis points to 8.1 percent, the most since January 2009.
RBI Governor Duvvuri Subbarao maintained interest rates in June for the first time in four reviews, citing inflation risks posed by the weak rupee. The next review is due on July 30.
The wholesale-price index rose 4.86 percent in June from a year earlier, compared with 4.7 percent in May, official data showed yesterday. The median estimate in a Bloomberg survey of 30 analysts was 4.94 percent. Retail price-inflation climbed to 9.87 percent in June from 9.31 percent, data showed July 12.
The Sensex has gained 1.8 percent this year and trades at 13.2 times projected 12-month earnings. That compares with the MSCI Emerging Markets Index’s 10 times.
Morgan Stanley cut its year-end Sensex target 6.9 percent to 21,500, saying the RBI’s decision raises risks to economic expansion, cost of money and damps local liquidity, according to a report today.
Global investors sold $220 million of local shares on July 11, paring this year’s inflows to $13.3 billion, data compiled by Bloomberg show. International funds sold $1.8 billion in June, the most since August 2011, the data show.
The CNX Nifty Index on the National Stock Exchange of India lost 1.4 percent to 5,945.45.
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net
To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net