India Stocks Slump on Lehman Bankruptcy; Reliance Leads Drop

By Pooja Thakur

Sept. 15 (Bloomberg) -- Indian stocks plunged, with the Sensitive index falling to its lowest in a month, after Lehman Brothers Holdings Inc. filed for bankruptcy, deepening a global financial crisis.

Reliance Industries Ltd., India's most valuable company, dropped 2.4 percent to its lowest in two weeks. ICICI Bank Ltd., the country's second-largest lender, fell 3.9 percent, to its lowest since July 29.

``The pain is unfolding at a huge cost because of the erosion in value'' of U.S. investment banks, said A. Balasubramaniam, who oversees $8.7 billion in assets as chief investment officer at Birla Sun Life Asset Management Co. ``It's difficult to say how deep the problem is going to be.''

The Bombay Stock Exchange's Sensitive Index, or Sensex, declined 469.54, or 3.4 percent, to 13,531.27, its lowest since July 17, recouping 380.46 points from the day's low.

Stocks recouped some of their losses after China cut interest rates for the first time in six years and reduced the amount of cash that some banks are required to set aside.

The S&P CNX Nifty Index on the National Stock Exchange retreated 3.7 percent to 4,072.90, the biggest decline since July 15.

Stocks sank in Australia, Taiwan and Southeast Asia after Lehman Brothers, the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis with the biggest bankruptcy filing in history. Also, American International Group Inc., the largest U.S. insurer by assets, was working on plans late yesterday to raise capital and sell units to forestall credit downgrades that may hobble it.

Sensex, MSCI

India's Sensex outperformed its Asian peers over the past two months, climbing 5.2 percent from its July 16 low while the MSCI Asia Pacific Index fell 4.6 percent.

Bank of America Corp. separately agreed to buy Merrill Lynch & Co. for about $44 billion, a person with knowledge of the deal said, after shares of the third-biggest U.S. securities firm fell by more than 35 percent last week. That agreement came after Bank of America and Barclays Plc abandoned talks to buy Lehman.

Stocks also fell after bomb blasts in the capital, New Delhi, killed 21 people on Sept. 13, the worst terrorist attack in the country since 50 people died in the western city of Ahmedabad in July.

``The news of Lehman Brothers filing for bankruptcy and the Merrill Lynch takeover has shaken investor confidence,'' said Viswanathan Vasudevan, who manages about $400 million at Aquarius Investment Advisors Pte. from Singapore. ``Also, the blasts in New Delhi have added to the woes.''

Rupee Drops

Reliance fell 2.4 percent to 1,886.95 rupees, its lowest since Aug. 28. ICICI dropped 3.9 percent to 627.50 rupees, its lowest since July 29. The two account for about 22 percent of the Sensex's weight.

India's rupee slumped to a two-year low on concern investors will dump riskier assets, including emerging-market securities. The rupee fell 0.5 percent to 45.9375 per dollar as of 3:55 p.m. in Mumbai, adding to last week's 2.3 percent loss, according to data compiled by Bloomberg.

``Foreign institutional investor flows coming into India have been affected, and hence the stock market is showing some impact,'' Naina Lal Kidwai, chief executive officer of the India unit of HSBC Holdings Plc said from New Delhi today.

Overseas investors sold a net 14.1 billion rupees ($307 million) of Indian stocks on Sept. 11, increasing their net outflow this year from equities to $7.8 billion, the nation's market regulator said.

Satyam Drops

Satyam Computer Services Ltd., India's fourth-largest software services provider, had its biggest drop in more than five years after a report that the company may fire about 9 percent of its employees.

Satyam dropped 9.5 percent to 368.50 rupees, the most since April 10, 2003. Satyam may cut as many as 4,500 jobs, the Economic Times reported today, citing unidentified people.

As part of its appraisal process, Satyam said it identified ``around 5 percent'' of its employees for ``performance improvement.'' About half of them will leave ``voluntarily or involuntarily,'' Satyam said.

Satyam led other software developers lower. Tata Consultancy Services Ltd. and Infosys Technologies Ltd., India's largest, fell 5.9 percent to 762.80 rupees and 4 percent to 1,578.15 rupees respectively.

To contact the reporters on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net;