Indian stocks dropped, led by the biggest two-day plunge in banks since the global financial crisis, amid concern that policy makers will sacrifice economic growth as they seek to stem the rupee’s slide to a record.

State Bank of India lost 1.7 percent and ICICI Bank Ltd. (ICICIBC) slumped 3.3 percent. The 13-member S&P BSE Bankex tumbled 3 percent, taking its two-day loss to 8.4 percent, the most since February 2009. Tractor maker Mahindra & Mahindra Ltd. (MM) retreated the most since November 2011. Ranbaxy Laboratories Ltd., the nation’s largest drugmaker, rose 1.4 percent amid speculation a weak currency will boost the value of its repatriated earnings. The rupee weakened to an unprecedented 62.46 a dollar today.

The S&P BSE Sensex slid 1.1 percent to 18,386.46 at 10:56 a.m. in Mumbai. Indian stocks have posted four weeks of losses amid concern that government efforts to support the rupee will weigh on the nation’s economy, which grew at the slowest pace in a decade in the year ended March 31. Prime Minister Manmohan Singh said over the weekend that the country needs “fresh thinking” on its economic policies.

“It’s a doom and gloom scenario out there,” Sajiv Dhawan, managing director of brokerage JV Capital Services, told Bloomberg TV India today. “The currency is weakening and there’s panic at the moment. Whatever the government or the RBI says is not creating any calm or stability.”

State Bank fell 1.4 rupees to 1,549.4. ICICI Bank plunged 3.3 percent to 830.15 rupees. HDFC Bank Ltd., (HDFCB) the biggest lender by market value, decreased 2.1 percent to 575.4 rupees. Housing Development Finance Corp. (HDFC) slid 2.4 percent to 720 rupees.

Larsen, ABB

Mahindra & Mahindra plunged 5.3 percent to 795.95 rupees. Engineering company Larsen & Toubro Ltd. (LT) decreased 2.5 percent to 738.3 rupees and ABB India Ltd. tumbled 2.3 percent to 465.5 rupees, putting the S&P BSE Capital Goods Index on course for its lowest close since April 2009.

Ranbaxy, which gets 78 percent of its sales from abroad, climbed 1.4 percent to 384.9 rupees.

The Sensex’s 4 percent plunge on Aug. 16 underscored the failure of months of steps to curb outflows, from higher interest rates to gold import curbs. Foreigners sold a net $ 3 billion of equities and bonds in July as slowing growth made the economy vulnerable to a pullout of funds from emerging markets, spurred by speculation the U.S. Federal Reserve will cool stimulus.

“The rupee needs to settle down and only then we will see a resumption of funds into the markets on a sustainable basis,” Dhawan said.

Curbing Liquidity

The Reserve Bank of India since mid-July has raised the marginal standing facility and bank rates, capped cash injections into the banking system and tightened lenders’ daily reserve requirements to curb the supply of rupees, seeking to shore up the currency’s value.

The central bank targeted outflows on Aug. 14, cutting the amount Indian (SENSEX) companies can invest abroad without approval to 100 percent of their net worth from 400 percent, and saying residents can remit $ 75,000 each financial year compared with a previous limit of $ 200,000.

India’s economy may expand 5.5 percent in the year ending March 2014, compared with 5 percent in the previous 12-month period, the central bank estimates. That lags behind the 10-year average of about 8 percent as well as the performance of neighbors from Indonesia to the Philippines.

About 47 percent of Sensex companies that posted earnings for the June quarter missed analyst estimates. That compares with 27 percent for the three months ended March, and 43 percent in the December quarter, data compiled by Bloomberg show.

The Sensex has lost 5.3 percent this year and trades at 13 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 10 times.

The CNX Nifty (NIFTY) Index on the National Stock Exchange tumbled 1.4 percent to 5,432.15, heading for its lowest close since Sept. 12, 2012. India VIX, which gauges the cost of protection against losses in the Nifty, surged 4.6 percent, extending the 26 percent rise on Aug. 16. Volume on the Sensex was 21 percent more than the 30-day average at this time of the day.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at

To contact the editor responsible for this story: Michael Patterson at