Sensex drops for third day over growth fears

Indian stocks declined for a third day as concern rising rates may stall economic expansion and reduce company earnings countered optimism that a drop in oil prices may keep the central bank from raising borrowing costs further. ITC fell 3.4 per cent. Mahindra & Mahindra Ltd slid 4 per cent. Oil traded near a five-week low in New York on concern a slowing economy in the US may damp fuel demand in the biggest crude-consuming nation. The Bombay Stock Exchange Sensitive Index, or Sensex, slid 252.26, or 1.4 per cent, to 17,688.29, according to preliminary closing prices at the 3:30pm close in Mumbai. The S&P CNX Nifty Index lost 1.4 per cent to 5,331 and its August futures settled at 5,339.80. The BSE 200 Index dropped 1.2 per cent. Indian stocks, the second-worst performers among the 20 largest markets this year, have further to fall as interest-rate increases hurt corporate profits, said Citigroup head of markets for South Asia. Article continues below Foreign investors \"shouldn\'t jump in now,\" Pankaj Vaish said in an interview in Mumbai. \"The impact of the slowdown is yet to be felt.\" Citigroup analysts this week lowered their estimate for profit growth for the 30 companies that make up the Bombay Stock Exchange Sensitive Index to an average 21.5 per cent in the year to March 2012, from 24 per cent. Worst performer Overseas investment in Indian equities slumped to $2.4 billion in the first seven months of 2011, from $10.4 billion in the same period last year, according to data from the Securities and Exchange Board of India. The Sensex has dropped 13 per cent this year, making it the second-worst performer among the 20 largest benchmarks after Brazil\'s. The Sensex would need to fall another 4 per cent before valuations become attractive, said Vaish, 45. The benchmark Sensex index is trading at 12 times the estimated earnings of its members, compared with 8.8 times for South Korea\'s Kospi index and 10.3 times for the Hang Seng Index.