India’s Sensex Snaps Five-Day Rally on Growth, Earnings Outlook

India’s benchmark index dropped for the first time in six days after the government forecast the weakest economic expansion this year since 2009.

Hindustan Unilever Ltd. had its biggest two-day decline in more than a year after Citigroup Inc. cut its stock rating to “sell” citing stronger competition. Mahindra & Mahindra Ltd., India’s largest maker of sport utility vehicles and tractors, tumbled after reporting a 10 percent drop in earnings.

The BSE India Sensitive Index, or Sensex, lost 0.5 percent to 17,622.45 at the 3:30 p.m. close, halting a five-day rally. The gauge has rallied 14 percent this year as the rupee jumped from a record low and the central bank eased monetary policy for the first time since 2009. The economy will probably grow 6.9 percent in the year ending in March, less than the median estimate of 7 percent in a Bloomberg survey. Gross domestic product expanded 8.4 percent in 2010-2011.

“I don’t think there’s much upside from here because there’s going to be still slower growth coming in,” Jim Walker, managing director at Hong Kong-based Asianomics Ltd. and former chief economist at CLSA Asia-Pacific Markets, told Bloomberg UTV today. “We recommend taking profits. There’s still a long slog ahead for the Indian economy.”

Hindustan Unilever, the seller of Fair & Lovely lotions, Ponds creams and Knorr soups, retreated 1.3 percent to 382.15 rupees, extending its two-day slide to 4.8 percent. Sales of personal-care products increased 14 percent in the December quarter, the company said yesterday. That expansion was weaker than some analysts had estimated amid a slowing economy.

Monetary Policy

India’s growth has slowed after the Reserve Bank of India increased rates by a record amount from 2010 until October last year to fight price increases and as Europe’s debt crisis adds to the government’s struggle to attract foreign investment. The RBI has signaled readiness to follow countries from Brazil to Indonesia in lowering borrowing costs, provided inflation eases further from a two-year low of 7.47 percent in December.

Nine out of 18, or 50 percent, of Sensex companies have posted December-quarter profits that missed analyst estimates, compared with 40 percent in the September quarter.

The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. lost 0.5 percent to 5,335.15. The BSE 200 Index fell 0.7 percent to 2,156.34, ending a five-day rally.

Mahindra slid 2.9 percent to 689.65 rupees, its steepest fall in a week. Net income, excluding units, declined to 6.62 billion rupees in the quarter ended Dec. 31 from 7.35 billion rupees a year ago. Profit lagged behind the 6.84 billion-rupee median of 32 analysts’ estimates compiled by Bloomberg.

Margin Pressure

The maker of Xylo and Scorpio vehicles spent 45.8 billion rupees, or 21 percent more, on raw materials, according to the statement. Mahindra said today it expects margins will continue to be under pressure.

Tata Motors Ltd., the biggest nation’s truckmaker and owner of Jaguar Land Rover, fell 0.6 percent to 250.35 rupees.

Tata Steel Ltd., the largest producer, shed 3.4 percent to 451.35 rupees. Sterlite Industries (India) Ltd., the biggest copper and zinc maker, lost 2.3 percent to 122.5 rupees.

Reliance Industries Ltd., owner of the world’s largest oil-refining complex, surged 1.4 percent to 844.55 rupees. The nation’s most valuable company was increased to “buy” from “neutral” by Goldman Sachs analysts including Nilesh Banerjee citing upcycle in refining that will lift margins and probably drive earnings surprise over medium term. The brokerage raised the price target to 970 rupees from 960 rupees.

Fuel Imports

Jet Airways (India) Ltd., the biggest carrier, surged 15 percent to 340.9 rupees, after a panel of ministers recommended allowing carriers to import jet fuel directly to avoid paying taxes. The stock has doubled this year. Kingfisher Airlines Ltd. rallied 14 percent to 29.2 rupees. SpiceJet Ltd. surged 11 percent to 27.3 rupees.

The proposal to allow airlines to import fuel will be sent to cabinet for a final approval, Aviation Minister Ajit Singh told reporters in New Delhi. The move may help billionaire Vijay Mallya, who controls Kingfisher, cut the average 24 percent of local taxes his company pays to purchase jet fuel, the biggest expense for carriers.

Indian carriers may post a combined loss of $2.5 billion in the year ending in March because of fuel prices and their inability to raise fares in a competitive market, according to CAPA Centre for Aviation, an industry consultant.

Foreign investors purchased a net $227 million of Indian stocks on Feb. 3. They have bought a net $3.5 billion of shares this year, data compiled by the regulator show. They sold $512 million of equities last year on concern a slowdown in the U.S. and Europe’s debt crisis may erode earnings. Flows reached a record $29.4 billion in 2010.

-- Editor: Ravil Shirodkar

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