India’s stocks fell after the central bank’s deputy governor said interest rates may be raised “anytime” after the government allowed fuel prices to increase.
ICICI Bank Ltd., the country’s second-biggest lender, fell 1.6 percent. Jaiprakash Associates Ltd., the largest builder of dams, dropped 1 percent. Deputy Governor K.C. Chakrabarty yesterday said in Mumbai that borrowing costs may be increased before or in a July 27 monetary policy meeting. The inflation rate may climb by almost a percentage point after gasoline and diesel prices were allowed to rise, the finance ministry forecast on June 26.
“The prospect of an interest rate increase is like a hanging sword,” said Kishor Ostwal, managing director of CNI Research (India) Ltd., a publicly traded equities research provider in Mumbai. “Traders are hesitant to take fresh positions.” He advises investors to avoid shares of banks, real estate companies and automakers.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 101.15, or 0.6 percent, to 17,673.11 at 9:29 a.m. in Mumbai. The S&P CNX Nifty Index on the National Stock Exchange lost 0.6 percent to 5,302.35. The BSE 200 Index retreated 0.3 percent to 2,248.95.
ICICI Bank declined 1.6 percent to 856.55 rupees. Jaiprakash decreased 1 percent to 130 rupees. fell 0.6 percent to 290.1 rupees. Tata Motors Ltd., India’s biggest truckmaker, lost 0.8 percent to 782.8 rupees.
Policy Meeting
“The possibility of a rate hike is always there,” Chakrabarty said. “It can happen anytime. It can probably happen before the policy or even in the policy.” He was referring to the Reserve Bank of India’s next monetary policy meeting scheduled for July 27.
Reserve Bank Governor Duvvuri Subbarao, who has raised interest rates twice since mid-March, said June 18 he would tighten monetary policy in a “calibrated” manner, given the cash squeeze in the economy and risks to growth posed by Europe’s debt woes. India’s benchmark whole-sale inflation index rose 10.16 percent in May.
Overseas funds sold a net 2.84 billion rupees ($61 million) of Indian equities on June 25, paring their investments in the stocks this year to 303.7 billion rupees, according to the nation’s market regulator.
Inflows from overseas reached a record 834.2 billion rupees in 2009, exceeding the high set two years ago in local currency terms, as the biggest advance in 18 years lured foreign funds. They sold a record 529.9 billion rupees of shares in 2008, triggering a record annual decline.
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