India’s Sensex Drops as Global Slowdown Hurts Regional Earnings

Indian stocks dropped, mirroring losses in Asian and European equities, after earnings reports from Taiwan to Sweden disappointed investors and as Moody’s Investors Service cut credit ratings on five Spanish regions.

The BSE India Sensitive Index (SENSEX), or Sensex, fell 0.4 percent to 18,710.02 at the close. Hero MotoCorp Ltd. (HMCL), India’s biggest motorcycle-maker, slumped 1.8 percent before an earnings report showed profit fell for the first time in six quarters. Jindal Steel & Power Ltd. (JSP) sank 2.4 percent, the most on the Sensex.

The MSCI Asia Pacific Index (MXAP) slid 0.5 percent as companies including Acer Inc. announced lower-than-expected profits amid a global economic slowdown. Of the 47 companies on the regional benchmark index that reported quarterly earnings since Oct. 1, 57 percent missed estimates and 43 percent beat expectations, data compiled by Bloomberg News show. The Stoxx Europe 600 Index (SXXP) lost 0.9 percent in London as results from companies including Alfa Laval AB and D.E Master Blenders 1753 NV disappointed investors.

“Global earnings haven’t been too encouraging and Indian markets can’t function in isolation given the impact events worldwide have on foreign inflows into the country,” K.K. Mital, a New-Delhi based fund manager at Globe Capital Market Ltd., said by phone today. “Indian earnings have surprised pleasantly but concerns on the global front remain.”

More than 100 companies in Australia, China, India, Japan, South Korea and Taiwan are due to announce earnings this week. Indian markets are closed tomorrow for a public holiday.

European Union

Moody’s lowered its rating for Catalonia and four other Spanish regions, citing “deterioration in their liquidity positions.” Concerns about the country’s creditworthiness have grown since Prime Minister Mariano Rajoy requested as much as 100 billion euros in European Union aid to boost Spanish banks amid signs the country may miss its budget deficit goals. The European Union took in 17 percent of Indian exports in the six months ended September 2011, government data show, making it India’s largest trading partner.

The Sensex has surged 21 percent this year as foreigners bought a net $18.1 billion of domestic shares, the most among 10 Asian markets tracked by Bloomberg, excluding China. The gauge increased 7.7 percent last month, the most since January, as Prime Minister Manmohan Singh opened the retailing and airline industries to foreigners, cut fuel subsidies and lowered a tax on companies’ overseas borrowings to revive an economy growing at the slowest pace in three years.

IMF Forecast

India’s gross domestic product expanded 5.5 percent in the June quarter from a year ago, a pace close to the three-year low of 5.3 percent in the first quarter. Economic growth may weaken to a decade-low of 4.9 percent in 2012 after investment stalled even as Singh pursues the revamp, forecasts from the International Monetary Fund showed on Oct. 9.

The Sensex is valued at 14.8 times estimated earnings, compared with a multiple of 11.5 times for the MSCI Emerging Markets Index (MXEF), which has risen 9.2 percent in 2012.

Profit at only one out of the 10 Sensex firms that have reported earnings for the September quarter has trailed analyst forecasts, compared with 40 percent of the index members in the June quarter and 30 percent in the previous three months, data compiled by Bloomberg show.

“Earnings beats have outnumbered misses with 39 percent of BSE-100 Index (BSE100) companies reporting a positive surprise, as opposed to 31 percent reporting negative surprise,” Barclays Capital analysts led by Bhuvnesh Singh said in a note yesterday.

Hero retreated 1.8 percent to 1,795.75 rupees, the most since Sept. 27. Net income dropped 27 percent to 4.41 billion rupees ($82 million), the company said in a filing today. That compared with the 4.4 billion-rupee median of 40 analysts’ estimates compiled by Bloomberg.

Metal Stocks

Copper producer Sterlite Industries (India) Ltd. (STLT) posted a group profit of 17.4 billion rupees, exceeding the 12.2-billion rupee median of 26 analyst estimates in a Bloomberg survey. The stock slid 0.8 percent to 98.5 rupees before the results, which were announced after trading ended.

Jindal Steel sank 2.4 percent to 390.75 rupees in a third day of declines that took the stock to its lowest close since Sept. 14. ITC Ltd. (ITC), the largest producer of cigarettes, lost 1.4 percent to 290 rupees. Software exporter Infosys Ltd. (INFO), the only Sensex member to have missed estimates so far this season, lost 1.4 percent to 2,353.10 rupees, the lowest since Sept. 5.

Larsen & Toubro Ltd. (LT) climbed for a second day, adding 1.8 percent to 1,701.35 rupees, the highest level since Sept. 8. It yesterday announced a better-than-estimated 43 percent jump in net income.

The S&P CNX Nifty Index (NIFTY) dropped 0.5 percent to 5,691.40 while its October futures traded settled at 5,695.50. India VIX, which gauges the cost of protection against losses in the Nifty index, jumped 5.1 percent to 13.71, rebounding from yesterday’s record low. The National Stock Exchange of India Ltd. and the BSE Ltd. traded 708 million shares yesterday, compared with a 12-month daily average of 912 million.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

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

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