Indian Stocks Fall on Earnings Concern; Lenders, BHEL Lead Drop

Indian stocks declined for the third day, led by state-owned lenders after Bank of Baroda’s earnings missed analysts’ estimates because of an increase in bad loans.

The BSE India Sensitive Index, or Sensex, lost 0.2 percent to 19,751.19 at the close, wiping an intraday advance of 0.6 percent. State Bank of India, the nation’s largest lender, fell the most in three months and was the biggest drag on the gauge. Bank of Baroda, which is not a Sensex member, slumped the most since October 2008. Bharat Heavy Electricals Ltd., the nation’s power-equipment maker, slid to a four-month low.

The Sensex closed on Feb. 1 at its lowest level since Jan. 11 amid concern over valuations as earnings from Bharti Airtel Ltd., the largest cell-phone operator, and Bharat Heavy trailed estimates. Nine of the 10 biggest losers on the 60-member BSE India Public Sector Undertakings today were state-run lenders, data compiled by Bloomberg show.

“The rally is not getting support from macro or earnings numbers,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd., said by phone from Kochi in southern India. “Bank of Baroda’s earnings triggered a selloff in PSU banks” or government-owned lenders, he said.

Bank of Baroda’s shares plunged 7.4 percent, the steepest loss since Oct. 27, 2008, to 804.15 rupees, the biggest losers on the MSCI Asia Pacific Index. Third-quarter net income fell 22 percent to 10.1 billion rupees ($189.5 million), according to an exchange filing. That’s less than the 13.2 billion rupees estimated by analysts in a Bloomberg survey.

Chairman S.S. Mundra said the bank expects most slippage from loans to companies and that the next three quarters would be challenging in asset quality.

Bad Debts

State Bank of India fell 2.5 percent to 2,352.6 rupees, the lowest level since Dec. 24. UCO Bank slid 4.2 percent to 71.4 rupees. Andhra Bank tumbled 3.8 percent to 106.4 rupees. Union Bank of India decreased 3.6 percent to 240 rupees.

Indian banks’ bad-debt ratio jumped the most in at least five years in the year ended Sept. 30 as the highest interest rates among the major emerging economies in Asia and a weak rupee eroded companies’ earnings and crimped their ability to repay debt.

“I won’t advise anyone to buy state-run banks” on asset quality concerns, Chokkalingam G, chief investment officer at Centrum Broking Ltd. in Mumbai, told Bloomberg UTV today. “One can look at private lenders.”

Shares of non-state lenders rallied. ICICI Bank Ltd., the country’s biggest private lender, rose 0.9 percent to 1,181.75 rupees. HDFC Bank Ltd. gained 1.1 percent to 646.9 rupees and Housing Development Finance Corp., the biggest mortgage lender, surged 2.6 percent to 798.25 rupees.

Industrials Decline

Tata Steel Ltd., India’s biggest producer of the alloy, fell 1.5 percent to 395.05 rupees. Bharat Heavy declined 2.6 percent to 219.1 rupees, the lowest close since Sept. 20. Oil & Natural Gas Corp., the largest explorer, dropped 1.9 percent to 325.75 rupees. The stock surged 27 percent last month.

Tata Motors Ltd., the owner of Jaguar Land Rover, surged 3.7 percent to 292 rupees, ending a four-day, 8.7 percent drop. The stock may increase 25 percent in the next 18 months as the Indian carmaker takes steps to expand and improve its brands, Barron’s said in its Feb. 4 edition.

The stock lost 5.5 percent on Feb. 1 after sliding as much as 10 percent. The slump was a result of a software glitch at Religare Capital Markets Ltd., the Mumbai-based brokerage said in a statement the next day.

The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. fell 0.2 percent to 5,987.25. India VIX surged 4.2 percent to 14.34, ending a four-day drop.

Valuations Climb

The Sensex has lost 1.8 percent since reaching a two-year high of 20,103.53 on Jan. 25. It trades at 13.7 times estimated earnings for the year ending in March 2014, the highest level since February 2012. The MSCI Asia Pacific Index is valued at 14.8 times, data compiled by Bloomberg show.

“Valuations have moved up, but they are not expensive,” Prasun Gajri, chief investment officer at HDFC Standard Life Insurance Co., said in an interview to Bloomberg TV India. “If the market has to really head into a bull run then we need to start seeing some earnings upgrades.”

Five out of 17, or 29 percent, of Sensex companies that have posted December-quarter earnings have trailed estimates, compared with 40 percent in the previous two quarters, data compiled by Bloomberg show.

The Sensex rose 26 percent in 2012 as government policies to revive economic growth prompted foreign funds to buy a net $24.5 billion of local shares, the most among 10 Asian markets tracked by Bloomberg, excluding China.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE