Indian equities retreated to the lowest level in seven weeks as concerns over slowing company earnings countered speculation U.S. and European central banks may take fresh stimulus steps.
ITC Ltd., which has the biggest weighting on the BSE India Sensitive Index, declined after first-quarter revenue trailed estimates. Infosys Ltd., the second-biggest software exporter, fell to the lowest close in almost three years. ICICI Bank Ltd. led other lenders lower. The 30-stock Sensex fell 1.2 percent to 16,639.82, its lowest close since June 6.
As many as 40 percent of Sensex companies that have posted June-quarter results trailed profit estimates as high interest costs and policy paralysis in the government slowed economic growth to a near-decade low even as Europe’s debt crisis curbed exports. The European Union is India’s largest partner.
“Some earnings have been disappointing and the inaction on policy reforms is keeping sentiments subdued,” said Rikesh Parikh, vice president of equities at Motilal Oswal Securities Ltd. in Mumbai. “High interest costs and weak demand seem to have reduced revenues.”
Six out of 15 companies in the Sensex have missed earnings estimates, compared with 30 percent that trailed forecasts in the quarter ended March, and 47 percent three months earlier, data compiled by Bloomberg show.
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 his own allies. The government last year suspended a plan to allow Wal-Mart Stores Inc. 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.
Investors also expect Singh to raise diesel prices for the first time in a year, a move that would help state-run refiners that sell fuels at below-market rates. Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. lose 3.6 billion rupees ($64 million) a day on fuel sales, government data show, and rely on subsidies and discounted crude purchases from state explorers to recover losses.
“Everything’s not perfect and we would like to see more by way of government policy, more in terms of specifics as opposed to rhetoric,” Jeff Chowdhry, head of emerging-market equities at U.K.-based F&C Asset Management Plc, told Bloomberg UTV today. “The market at the moment is narrow and based on companies which are delivering independent of the government policy rather than with the help of it.”
Asian stocks had their first advance in five days after a drop in U.S. new home sales fueled speculation the Federal Reserve may take new steps to spur growth, boosting demand for growth-sensitive shares. European Central Bank council member Ewald Nowotny said there were arguments in favor of giving the European Stability Mechanism a banking license, opening access to ECB lending.
Infosys lost 2.1 percent to 2,123.80 rupees, the lowest close since Aug. 25, 2009. ICICI Bank dropped 1.2 percent to 906.75 rupees. State Bank of India, the largest lender, slid 2.6 percent to 2,017.4, a two-month low. HDFC Bank retreated 1.8 percent to 565.80 rupees, a one-month low.
ITC, which has a 9.7 percent weighting in the Sensex, fell 2.1 percent to 249.45 rupees. First-quarter revenue of 66.5 billion rupees was lower than the 66.8 billion rupees estimate in a Bloomberg News survey. Net income rose 20 percent to 16 billion rupees in the three months ended June, beating the 15.8 billion-rupee median of 24 analysts’ estimates.
Tata Motors Ltd., the owner of Jaguar Land Rover, sank 3.7 percent to 205.1 rupees, the lowest price since Jan 11. Bharat Heavy Electricals Ltd. dropped 2 percent to 211.95 rupees. The electric equipment manufacturer said first-quarter profit rose to 9.21 billion rupees, higher than the 8.23 billion rupees estimate in a Bloomberg News survey.
Sterlite Industries Ltd. lost 2.9 percent to 97.45 rupees. Net income fell to 12 billion rupees, still beating the 11.5 billion rupees estimate of 26 analysts in a Bloomberg survey. Earnings were announced after markets closed.
India VIX, which measures the cost of protection against losses in the S&P CNX Nifty Index, fell 2.3 percent to 16.37, the lowest since Sept 2010. The Nifty index dropped 1.3 percent to 5,043. Its August futures settled at 5,083.50. The BSE-200 Index decreased 1.3 percent. Combined volume on the nation’s top two bourses was 768 million shares yesterday, 15 percent less than the 12-month daily average of 899 million shares.
The Sensex has gained 8 percent this year, partly because of record purchases by overseas investors, who have bought a net $10.2 billion in local equities since Jan. 1, the highest in Asia and a record for the period. The stock gauge trades at 13.1 times estimated earnings, compared with the MSCI Emerging Markets Index’s 10 times.
Overseas investors sold a net 2.11 billion rupees of local stocks on July 24, the first sales in 18 days, data from the market regulator show.