India’s Nifty Futures Swing on Earnings Concerns as Growth Slows

Indian stock futures swung between gains and losses amid concern corporate earnings growth may weaken as the economy expands at the slowest pace in a decade.

SGX S&P CNX Nifty Index futures for February delivery added less than 0.1 percent to 5.965 at 10:05 a.m. in Singapore after dropping as much as 0.9 percent. The underlying S&P CNX Nifty Index fell 0.3 percent to 5,938.80 yesterday. The BSE India Sensitive Index, or Sensex, declined 0.3 percent to 19,580.32. The Bank of New York Mellon India ADR Index of U.S.-traded shares slumped 1.3 percent to the lowest since Jan. 10.

About 30 percent of Sensex companies that have reported December-quarter earnings have missed forecasts, compared with 40 percent in the previous two quarters. India forecast gross domestic product will expand 5 percent in the year ending March 31, the least since 2003, as subdued investment and one of the highest inflation levels among major emerging nations add pressure on Prime Minister Manmohan Singh to extend his economic reform agenda.

“There are no real signs of earnings recovery based on third-quarter numbers,” Sanjeev Prasad, senior executive director of Kotak Institutional Equities, told Bloomberg TV India yesterday. “Unless and until the reforms process starts impacting earnings, I don’t think the markets will really perform.”

Weaker Position

India’s economy is in a weaker position than before the global financial crisis and the Reserve Bank must refrain from cutting borrowing costs further until inflation is contained, the International Monetary Fund said on Feb. 6.

India became the first major Asian economy to ease borrowing costs in 2013, when the Reserve Bank of India cut its key repurchase rate by 25 basis points to 7.75 percent on Jan. 29, the first reduction since April 2012.

The Sensex has climbed 0.8 percent in 2013, erasing most of this year’s gains. The gauge trades at 13.6 times estimated earnings for the year ending March 2014, near the highest level since February 2012. The MSCI Emerging Markets Index is valued at 9.4 times, data compiled by Bloomberg show.

The benchmark index jumped 26 percent last year, the most in three years, as foreign funds bought shares amid government efforts to reduce subsidies, allow higher foreign investment in retailing and aviation, and hasten infrastructure projects in a bid to revive economic growth.

Overseas funds were net buyers of $252.3 million of Indian stocks on Feb. 6, extending this year’s net purchases to a net $5.94 billion. That’s a record for the period, data compiled by Bloomberg show.

Mahindra & Mahindra Ltd., Sun Pharmaceutical Industries Ltd. and Hindalco Industries Ltd. are among companies scheduled to post third-quarter earnings today.

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

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

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