Indian stock market indices have lost more than 40 percent since the begining of 2008. There has been great volatility in the share markets but the investor confidence is still low.

Investors are punishing stocks in India more than in any of the other largest emerging markets as government measures to curb inflation cut profits at companies from Steel Authority of India Ltd. to Grasim Industries Ltd.

Steel Authority, India’s second-largest producer of the metal, is valued at 9 times projected earnings, 41 percent less than at the start of 2008. The ratio for Grasim, the nation’s third-biggest cement maker, dropped 32 percent to 8.5. Price-to- earnings for the entire Indian market slumped 33 percent as foreign investors turned net sellers for the first time since at least 2000, more than in Brazil, Russia and China, where they fell 10 percent to 31 percent.

Investors are showing less faith in India — even after the benchmark Sensitive Index jumped 13 percent from its March low — because companies produce fewer commodities than Russia and Brazil, the nation’s gross domestic product is growing slower than China’s and a scarcity of coal, oil and iron ore drove inflation to a three-year high.

“I’m just not finding a compelling reason to be in India,” said Uri Landesman, who oversees $5.5 billion as head of global growth and international equities at ING Group NV’s asset management unit in New York. “With little natural resources given their population, inflation might be a problem and the government might end up quashing some of the GDP growth.”

India is the only so-called BRIC market where Landesman, 46, isn’t invested after he sold the last of his Indian stocks at the start of the month. He declined to name them. BRIC is an acronym coined by Goldman Sachs Group Inc. in November 2001 to encompass four emerging markets it predicted would join the U.S. and Japan as the world’s biggest economies by 2050.

Dumping Shares

India is also the only BRIC nation where economic growth is forecast to slow for a second consecutive year in 2008, according to the Washington-based International Monetary Fund.

Overseas fund managers pulled a net $3.03 billion out of Indian equities in the first three months of the year. That’s the first time foreigners have been net sellers on a quarterly basis since the data were first compiled in 2000.

“There are no triggers really for the markets to move up,” said Mahesh Patil, who helps manage $8.8 billion at Birla Sun Life Asset Management in Mumbai.

The declines have made stocks too cheap for some investors to pass up. Prudential ICICI Asset Management Co., India’s biggest money manager, and Merrill Lynch & Co.’s local management unit are among those betting on India’s plan to spend $1 trillion this decade on roads, railways and airports.

Six-Year Streak

“We remain very positive,” said Michael Konstantinov, Frankfurt-based chief investment officer for emerging market equities at RCM, a division of Allianz Global Investors, which oversees $435 billion. “I’m looking for the right time to increase our holdings.”

UBS AG, the top-rated research firm for Asian equities in Asiamoney magazine’s 2007 broker poll, is more skeptical. The Zurich-based investment bank predicted last month that rising prices will cause India’s central bank to tighten monetary policy, which will curtail earnings growth and end six years of stock gains that lifted the 30-company Sensex 522 percent.

“India’s probably going to remain out of favor,” said Geoff Lewis, the Hong Kong-based head of investment services at JF Asset Management Ltd., which oversees $110 billion. “It’s not the time to be putting more money in.”

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