Indian stocks fell to a one-month low amid concern slowing economic growth will hurt corporate earnings already threatened by Europe’s worsening debt crisis.
Jindal Steel & Power Ltd. (JSP) slipped to its lowest price in three years after profit slumped. Larsen & Toubro Ltd. (LT), the biggest engineering company, retreated for a fourth day. The BSE India Sensitive Index (SENSEX) dropped 0.4 percent to 16,846.05, the lowest close since June 18.
India’s economic expansion slowed to a near-decade low in the March quarter from a year ago as the debt crisis in Europe, its top trading partner, curbed exports and a policy gridlock deterred investments. Six of 12, or 50 percent, of companies on the Sensex that have posted June-quarter earnings have trailed estimates, compared with 30 percent in the March quarter and 47 percent three months earlier, data compiled by Bloomberg show. Growth will decelerate this year in India and the other BRIC nations, the International Monetary Fund said July 16.
“For 2013 we’re looking at 9 percent earnings growth in the Sensex companies and about 11 percent for 2014,” compared with an average 33 percent annually between 2004 and 2008, said Sanjeev Prasad, senior executive director and co-head of Kotak Institutional Equities, in an interview to Bloomberg UTV today. “You have seen a big downshift in the earnings numbers and that comes from the fact that your GDP growth itself is slowing dramatically. We have 6 percent growth in GDP for the current year and I don’t think it is going to be higher in 2014.”
Jindal Steel sank 4.6 percent to 395.8 rupees, the lowest close since July 2009, after first-quarter profit unexpectedly declined because of an impairment charge on an investment in Bolivia. Net income sank 58 percent to 3.9 billion rupees. The stock is the worst performer today on the Sensex.
Sesa Goa Ltd. (SESA), India’s biggest iron-ore exporter, dropped 1.6 percent to 183 rupees after reporting first-quarter net income that missed estimates late yesterday. Group net income increased 15 percent to 9.64 billion rupees ($172 million). The median profit estimate of 19 analysts surveyed by Bloomberg was 9.8 billion rupees.
Spanish two-year bond yields surged to a euro-era record, prompting policy makers to deny an international bailout was being prepared. German Finance Minister Wolfgang Schaeuble and Spanish Economy Minister Luis de Guindos said that Spain’s borrowing costs don’t reflect the strength of its economy as they pledged to work toward deeper integration to fight the debt crisis. The European Union accounted for 17.2 percent of India’s exports in the six months during April to September 2011, data from the commerce ministry show.
The Sensex has still gained 9 percent this year, bolstered by foreign funds who have invested a net $10.2 billion in local equities since Jan. 1, the highest in Asia and a record for the period. The flows have increased on speculation the government will revive its economic reforms agenda to bolster an economy growing at the weakest pace in almost a decade.
The Sensex trades at 13.2 times estimated earnings, lower than its three-year average multiple of 16.6. China’s Shanghai Composite Index has fallen 13 percent from this year’s high on March 2 to trade near its lowest level since March 2009 amid concern the economic slowdown is deepening. The Chinese gauge trades at 9.5 times estimated profit, compared with the average of 17.5 since Bloomberg began compiling the data in 2006.
“India is not a very cheap market despite all the talk of gloom and doom,” Kotak’s Prasad said. “China, which is facing challenges as far as economic slowdown is concerned, is trading at below 9 times, which is a lot more attractive than the 13.5 times where India is trading currently. If we don’t implement some of the important reforms which people are expecting, the market will go down.”
Prime Minister Manmohan Singh, who took control of the finance ministry in June, has pledged to revive an economic reforms agenda stymied by opposition from its own allies. The government last year suspended a plan to allow Wal-Mart Stores Inc. (WMT) and other foreign companies to open supermarkets, while an anti-corruption bill and proposals to allow foreign investment in aviation and pensions are also stalled.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty (NIFTY) Index, fell 1.3 percent to 16.75. The Nifty index lost 0.4 percent to 5,109.60. The BSE-200 Index declined 0.4 percent. Combined volume on the nation’s top two bourses was 725 million shares yesterday, 19 percent less than the 12-month daily average of 899 million shares.
Overseas investors sold a net 2.11 billion rupees ($37.7 million) of local stocks yesterday, the first withdrawal in 17 days, paring their investment in equities this year to 516 billion rupees, data from the market regulator show.
Reliance, owner of the world’s biggest oil-refining complex, lost 0.7 percent to 719.25 rupees. Larsen & Toubro lost 1 percent to 1,341.85 rupees. Hindustan Unilever Ltd. (HUVR), the world’s second-largest consumer goods company, decreased 2.5 percent to 464.45 rupees.
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