Friday 7 March 2008

Indian Stocks Complete Worst Week in 21 Months; Banks Plunge

India's stocks fell, sending the Sensitive Index to its biggest weekly decline in 21 months, on concern government pressure on banks to waive loans and reduce borrowing costs may curb profits as the economy slows.

State Bank of India, the nation's largest by assets, fell to its lowest in more than four months after Finance Minister Palaniappan Chidambaram said lenders should consider cutting rates on some home loans. ICICI Bank Ltd., the nation's second largest, declined the most in 10 months.

The Bombay Stock Exchange's Sensex dropped 566.56, or 3.4 percent, to 15,975.52, its lowest since Sept. 18. The S&P CNX Nifty index dropped 149.80, or 3 percent, to 4,771.60.

The banking index recorded its biggest weekly fall since May 2004 after Chidambaram yesterday signaled borrowing costs should be cut on 80 percent of all housing loans. The government is seeking to boost an economy facing the sharpest global slowdown since 2001 before elections due by May 2009.

``Chidambaram is trying to convince banks to lend at lower rates and boost the economy,'' said Deven Choksey, chief executive officer of Mumbai-based K.R. Choksey Shares & Securities, who manages $550 million, some of it in banking stocks. ``This might lead to narrower margins if not accompanied by a fall in deposit costs.''

The Sensex slumped 9.1 percent this week, its steepest fall since May 2006, with 27 out of 30 stocks falling. All 13 industry indexes on the exchange dropped by between 1.1 percent and 6.6 percent and eight stocks fell for each that rose.

Market Collapse

ICICI Bank extended losses after reporting $264 million of costs to write down the value of overseas investments, the biggest loss disclosed by an Indian bank since the collapse of the U.S. subprime-loan market.

ICICI Bank fell 67.65 rupees, or 7 percent, to 892.75 rupees, its biggest percentage decline since April 30. A possible cut in home loan rates by state-run banks may also force private banks such as ICICI to follow suit.

State Bank declined 12.35 rupees, or 0.7 percent, to 1,841.80, after falling as much as 5.3 percent.

Banks should consider cutting rates on home loans up to 2 million rupees ($50,000) as part of the government's efforts to bolster economic growth, Chidambaram said yesterday.

Week-Long Decline

The 18-member Bankex index has fallen every session this week after the minister in his budget speech on Feb. 29 told lenders to write off $15 billion of loans without specifying who would shoulder the burden.

Punjab National Bank shed 23.55 rupees, or 4.5 percent, to 499.75. HDFC Bank fell 50.1 rupees, or 3.8 percent, to 1,286.3.

Credit Suisse Group lowered the ratings of state-run banks following the government's proposed loan waivers. State Bank of India was cut to ``underperform'' from ``outperform.''

``Uncertainty will likely continue for at least two quarters until the loan waiver is finalized,'' analysts Aditya Singhania and Srinivasan R said in a note to clients on March 5. ``The risk perception associated with agricultural lending for government banks has risen significantly.''

NTPC Ltd., India's biggest power producer, and Power Grid Corp. of India led electricity companies lower after homes and office across northern India went without power for six hours.

Heavy fog knocked out the transmission grid this morning, disrupting supplies to the capital New Delhi and western Uttar Pradesh, Haryana, Punjab and Jammu and Kashmir, Power Grid said.

NTPC fell 9.85 rupees, or 5.1 percent, to 184.8. Power Grid also declined 5.1 percent, shedding 5.35 rupees, to 99.1 rupees.

Power Outages

Northern and western Indian provinces experience regular power outages caused by supply shortfalls, which shave 2 percentage points off India's annual growth, according to the government. India plans to invest $200 billion on generation and transmission of electricity to plug 15 percent peak shortages.

Reliance Energy Ltd. plunged 189.45 rupees, or 13 percent, to 1,270, its lowest since Sept. 28.

The nation's second-biggest utility by sales said it plans to buy back its shares at a maximum of 1,600 rupees apiece to help support a stock that's slumped 41 percent this year. The utility's board approved a plan to spend 20 billion rupees to buy back the shares.

The following are among the most active stocks in Indian markets.

GSS America Infotech Ltd. (GSSI IN) advanced 100.65 rupees, or 25 percent, to 500.65 rupees after debuting on the Bombay Exchange. The company sold shares at 400 rupees apiece.

Oil & Natural Gas Corp. (ONGC IN) fell 32.7 rupees, or 3.3 percent, to 955.2 after Chairman R.S. Sharma said the country's biggest fuel producer will suffer if the government withdraws a tax holiday for oil refiners.

Thomas Cook (India) Ltd. (TC IN) rose 4.2 rupees, or by its 5 percent daily limit, to 88.5 after the company's parent said it would buy back the unit to regain worldwide control of its trademark.