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Indian Stocks End Two-Day Rally on Earnings Concern; Bajaj Falls

Indian stocks dropped for the first time this week as some investors avoided taking fresh bets ahead of the corporate earnings season starting next week.

Bajaj Auto Ltd. (BJAUT), the nation’s second-biggest motorcycle maker, and Bharti Airtel Ltd. (BHARTI), the largest mobile services company, paced decline among their peers. Infosys Ltd., the second-biggest software maker, will be the first company on the benchmark stock index to report earnings on Jan. 12 for the three months ended Dec. 31.

The BSE India Sensitive Index (SENSEX), or Sensex, fell 0.4 percent to 15,882.64 at the 3:30 p.m. close in Mumbai after moving between gains and losses at least 18 times. The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India Ltd. declined 0.3 percent to 4,749.65. Both the gauges yesterday jumped the most since Dec. 21.

“We don’t expect significant moves before the earnings season as the extent of damage to profits from slowing domestic demand and Europe’s crisis is not clear,” K.K. Mital, a fund manager at Globe Capital Market Ltd., said from New Delhi.

Earnings forecasts for Sensex companies for the year to March 2012 have fallen 8.7 percent to 1,150 rupees per share, the most since the year ended March 2009, according to about 1,500 estimates compiled by Bloomberg. The Sensex slumped 25 percent last year on concern a weakening rupee, accelerating inflation and record interest-rate increases would worsen the effects of the European crisis on company profitability.

India’s current-account deficit widened to near a record last quarter, the central bank said on Dec. 30, as a weakening rupee made imports more expensive. The measure posted a $16.89 billion gap in the three months ended September. The rupee was Asia’s worst-performing currency in 2011, lifting import prices in a country that buys 80 percent of its fuel from abroad.

Weak Rupee

“India has a massive trade imbalance and that really explains why the rupee has been as weak as it has,” Michael Shaoul, chairman of Marketfield Asset Management in New York, said on Bloomberg Television. “We would expect the Sensex to be down significantly in 2012,” he said, without forecasting a level for the index.

Bajaj Auto, which introduced its first four-wheeler passenger vehicle yesterday, tumbled 4.6 percent to 1,425.55 rupees, its lowest level since Aug. 8. Hero Motocorp Ltd. slid 2.3 percent to 1,786.45 rupees, extending this week’s fall to 6.2 percent. TVS Motor Co. shed 1.2 percent to 48.2 rupees.

“We have moderated our two-wheeler industry growth assumption from 12 percent to 7 percent” for the year ending in March 2013, Credit Suisse Group AG analysts Jatin Chawla and Akshay Saxena wrote in a report today.

Stake Auction

State companies Hindustan Copper Ltd. (HCP) and MMTC Ltd. (MMTC) jumped after India’s market regulator yesterday allowed company owners to auction their stakes to investors instead of selling shares to the public. Hindustan Copper surged 15 percent to 253.2 rupees, taking its four-day rally to 57 percent. MMTC jumped 18 percent to 729.85 rupees after yesterday’s 19 percent advance.

Bharti dropped 3.4 percent to 346.35 rupees, ending a three-day 5.2 percent rally. Hindustan Unilever Ltd. (HUVR), the biggest household products maker, retreated 3.1 percent to 395.45 rupees. The stock was the best performer last year on the Sensex with a 30 percent advance.

Reliance Industries Ltd. (RIL) declined 1.2 percent to 716.15 rupees. People with knowledge of the matter said the company and partner BP Plc (BP/) won government approval to spend $1.5 billion to develop gas discoveries.

Overseas funds sold $512 million from Indian equities last year, compared with a record inflow of $29.4 billion in 2010, as Europe’s worsening debt crisis prompted investors to flee from assets perceived as risky. The EU is the Asian country’s biggest trading partner.

‘Cheapest 4 Club’

Last year’s plunge in the Sensex means the gauge trades at 13.8 times estimated earnings, down from 19.4 times at the end of 2010. The MSCI Emerging Markets Index is valued at 9.5 times.

Indian equities have joined the “cheapest 4 club” based on price-to-book and return-on-equity after China, Korea, Hong Kong, Credit Suisse Group AG analysts led by Sakthi Siva wrote in a report. They upgraded Indian equities to “neutral” from “underweight.”

Foreign funds bought a net 3.26 billion rupees of stocks yesterday, turning net buyers, according to the nation’s market regulator. They purchased 13.6 billion rupees of shares and sold 10.3 billion rupees, ending three days of withdrawals.

To contact the reporters on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net; 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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