GDP worries pull Sensex down

Falls 275 points, its steepest two-day loss since September 23; Nifty falls 1.6% to 4,886.

India’s benchmark stock index posted its biggest two-day drop in almost three months, amid concern that a freeze in decision-making by the government and Europe’s debt crisis would stall the economy’s growth.

Reliance Industries Ltd (RIL), India’s largest company, tumbled three per cent to a two-week low as Nomura Holdings downgraded the shares. Prime Minister Manmohan Singh backtracked this week on plans to allow overseas retailers, including Wal-Mart, to expand in the country, undermining efforts to revive growth and deepening a year-long paralysis in policy making. The BSE India Sensitive Index, Sensex, has slumped 21 per cent this year, faster than the 19 per cent drop in the MSCI Emerging Markets Index.

“India may continue to underperform emerging markets for now, because policy inaction and corruption scandals are pushing investors away,” Adrian Mowat, JPMorgan Chase & Co’s Hong Kong-based chief for Asia and emerging-market strategist, said in an interview on Friday. “Growth is slowing and headline inflation” hasn’t come down as fast as expected.

The Sensex slumped 274.8, or 1.7 per cent, to 16,213.46 at close in Mumbai, its steepest two-day loss since September 23. The gauge, which lost 3.8 per cent this week, rallied the most in two-and-a-half years last week on speculation the central bank may boost cash as China cut the reserve ratio for banks for the first time since 2008. As many as 26 of the 30 stocks (MXAPJ) in the measure retreated on Friday.

The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India fell 1.6 per cent to 4,866.7. Its December futures traded at 4,882.25. The BSE-200 Index (BSE200) lost 1.4 per cent.

Euro Concerns
Asian stocks declined for a second day, with the MSCI Asia Pacific Index (MXAP) losing two per cent on economic reports indicating Europe’s debt crisis was contributing to slower growth in Japan, South Korea and China. Japan’s Nikkei 225 Stock Average (NKY) sank 1.5 per cent after a report showed the nation’s economy grew less last quarter than the government’s initial estimate. South Korea’s Kospi Index (KOSPI) declined two per cent after producer prices rose at the slowest pace in a year in November.

European leaders holding all-night talks in Brussels added 200 billion euros ($267 billion) to their crisis-fighting fund to halt two years of debt-driven turmoil in financial markets and dispel concerns that the 17-nation euro currency is on the brink of unraveling. Europe is India’s biggest trading partner.

The Sensex was Asia’s worst performer yesterday after Reserve Bank of India Deputy Governor Subir Gokarn said December 7 the central bank won’t compromise on its fight to tame inflation to ease a cash deficit. Policy makers are concerned that adding cash by freeing up a part of the reserves held by banks will fan inflation that has stayed above nine per cent all year, even after seven interest-rate increases.

Food Prices
Still, food inflation slowed to the lowest level in more than three years in the week ended November 26, the trade ministry said yesterday, giving the central bank more scope to pause rate increases when it meets December 16.

Reliance retreated three per cent to Rs 755.70, the lowest close since November 25. Nomura downgraded the stock to ‘neutral’ from ‘buy’ and cut its price estimate 18 per cent to Rs 870, citing a likely slowdown in earnings. Sterlite Industries (India) Ltd, the biggest copper maker, slumped 3.3 per cent to Rs 101.30. Bharat Heavy Electricals Ltd, India’s biggest power-equipment maker, slid 3.3 per cent to Rs 263.75, extending yesterday’s 5.7 per cent retreat. Bajaj Auto, the second-biggest motorcycle maker, lost 3.3 per cent to Rs 1,670.35 and Mahindra & Mahindra sank 3.7 per cent to Rs 703.25.