India Sensex Drops to Lowest in Week as Earnings Miss Estimates

India’s benchmark stock index fell to the lowest level in a week amid concern company earnings may trail estimates as the central bank increases interest rates to control inflation.

Reliance Industries Ltd. (RIL), India’s most valuable company, lost 1.8 percent. Drugmaker Biocon Ltd. (BIOS) and Exide Industries Ltd. (EXID), a battery maker, fell after earnings missed forecasts. Reliance Communications Ltd. (RCOM), the second-largest mobile-phone operator, sank 4.2 percent.

The Bombay Stock Exchange Sensitive Index, or Sensex, fell 0.4 percent to 18,436.19, its lowest level since July 12, at the 3:30 p.m. close in Mumbai. The measure is the second-worst performer this year among benchmark indexes in the biggest 10 markets amid interest-rate increases. Three out of seven Sensex companies that have posted earnings for the June quarter have missed estimates as rising borrowing costs damped demand.

“I suspect this result season is going to be worse than the last season,” said Andrew Holland, chief executive officer for equities at Ambit Capital Pvt. “Companies which will not perform well will be punished. Foreign investors will take a long time to come back to those stocks.”

Companies on the Sensex may report a profit growth of 12 percent to 14 percent in the year ending March 2012, less than the consensus estimate of 17 percent, Rakesh Arora, head of research at Macquarie Capital Securities (India) Pvt., said in a July 18 interview. Bank of America Merrill Lynch reduced its profit estimate to 17 percent from 21 percent, Jyotivardhan Jaipuria, head of India research, said July 19.

Some 33 percent of the companies in the Sensex missed analysts’ profit estimates in the March quarter, compared with less than a quarter that did so last year.

Food Costs Drop

The Reserve Bank of India meets on July 26 to set policy after raising rates 10 times since March last year to rein in accelerating prices. Inflation quickened to 9.44 percent in June from 9.06 percent in May, the government said last week.

Food inflation rate fell to the lowest since March 2009 as grain output increased, an easing that may not be sufficient to prevent the central bank from raising rates next week.

An index measuring wholesale prices of agricultural goods, including rice and lentils, increased 7.58 percent in the week ended July 9 from a year ago, the trade ministry said today. It gained 8.31 percent the week before.

“We expect a third round of quantitative easing in the U.S. will add to inflationary pressures in India via higher raw- material costs,” Rahul Singh, managing director and head of equity research at Standard Chartered Securities (India) Ltd., said in an interview yesterday. Reserve Bank may raise rates by another 50 to 75 basis points by end of 2011, he said.

The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. lost 0.5 percent to 5,541.60 and its July futures settled at 5,544.20.

Cash Pile

Reliance Industries decreased 1.8 percent to 860.85 rupees and its July futures settled at 859 rupees. The company may say July 25 profit in the quarter ended June increased 16.5 percent to 56.5 billion rupees, according to the median estimate of 14 analysts in a Bloomberg News Survey.

Reliance’s “results are not going to be up to market expectations,” said Ambit’s Holland. “Until we get a clear view of the company’s strategy on the huge cash pile, the stocks is going” to underperform. The company’s shares have fallen 18 percent in the past year, compared with a 2.5 percent gain in the Sensex. Cash and equivalents totaled 423.9 billion rupees ($9.5 billion), the company said April 21.

Biocon slid 2 percent to 363.3 rupees after profit at the nation’s biggest biotechnology company declined 8.7 percent to 700.5 million rupees, less than 829 million rupees estimated by analysts. Exide sank 9.4 percent to 154.35 rupees. The company posted net income of 1.63 billion rupees in the June quarter, compared with a median estimate of 1.78 billion rupees.

Motorcycle Sales

Hero Honda Motors Ltd. (HH), which produces almost half the motorcycles sold in India, climbed 1.6 percent to 1,785.25 rupees, ending a five-day 6.5 percent slide. Net income beat analyst estimates for the first time in five quarters as rising incomes boosted sales to a record.

Net income in the quarter ended June rose to 5.58 billion rupees, from 4.92 billion rupees a year earlier, exceeding the 5.5 billion-rupee median of 27 analysts’ estimates compiled by Bloomberg. Sales climbed 32 percent to 56.4 billion rupees.

Reliance Communications plunged 4.2 percent to 90.5 rupees, extending this year’s loss to 38 percent.

JSW Energy Ltd. (JSW), a power producer, plummeted 6.5 percent to 71 rupees, the most since Feb. 9, after its profit dropped 55 percent to 1.36 billion rupees from a year earlier.

MindTree Ltd. (MTCL), a software maker, surged 9.5 percent to 393.85 rupees, the most in six months, after reporting first- quarter profit more than doubled to 345 million rupees. That beat analysts’ estimate of 245 million rupees.

Overseas funds sold a net 311 million rupees ($7 million) of Indian equities yesterday, paring their investment in stocks this year to 96.2 billion rupees, according to data on the website of the Securities and Exchange Board of India.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net.

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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