Indian equities declined the most in two weeks as lower-than-expected growth in earnings of some of the nation’s biggest companies outweighed an easing in the inflation rate to a three-year low.
The BSE India Sensitive Index, or Sensex, fell 0.6 percent to 19,497.18 at the close, with volumes 20 percent more than the 30-day average. Carmaker Maruti Suzuki India Ltd. retreated the most in a month after exiting the MSCI India Index. State Bank of India Ltd. and drugmaker Dr. Reddy’s Laboratories Ltd. slid after third-quarter earnings missed estimates.
Earnings at 43 percent of the 30 Sensex companies trailed estimates in the December quarter, compared with 40 percent in the previous two quarters, data compiled by Bloomberg show. The wholesale-price index climbed 6.62 percent from a year earlier, after rising 7.18 percent in December, the trade ministry said today, likely boosting room for another interest-rate cut.
“There will be pressure in the near term as earnings continue to disappoint, especially from manufacturing sector companies,” Sampath Reddy, who manages $7 billion as the chief investment officer at Bajaj Allianz Life Insurance Co., said in an interview. “Though the interest-rate trend is downward, the timeline has been getting elongated. Slashing rates by 100-125 basis points will aid growth. Earnings will pick up in first or second quarter” of the year starting April 1, he said.
India last month became the first major Asian nation to lower borrowing costs in 2013 as the central bank moved to back government policy changes aimed at reviving private investment. At the same time, the Reserve Bank of India signaled the space to reduce rates again is limited, and the government has vowed to curb spending in the Feb. 28 budget to damp price increases.
Maruti Suzuki, the biggest carmaker, retreated 3.1 percent to 1,485.25 rupees, the most since Jan. 16. Wipro Ltd., India’s third-biggest software exporter, tumbled 3.3 percent to 395.8 rupees on its exclusion from the CNX Nifty Index starting April 1. Siemens Ltd., which will also be removed, sank 4.7 percent to 576.2 rupees. IndusInd Bank Ltd. and NMDC Ltd. will replace the two companies in the index.
State Bank slid 1.7 percent to 2,215.75 rupees. Net income was 34 billion rupees, compared with 32.6 billion rupees a year earlier, the company said. That missed the 36.1 billion rupees estimated by analysts. Dr. Reddy’s decreased 1.6 percent to 1,874.35 rupees. Net income sank 29 percent to 3.63 billion rupees, missing the 4.29 billion rupees estimate.
Tata Motors Ltd. tumbled 2.5 percent to 297.2 rupees. The owner of Jaguar Land Rover reported its lowest quarterly profit in three years after trading ended. Third-quarter net income plunged to 16.3 billion rupees ($302 million) from 34.1 billion rupees a year ago, lagged behind the 29.3 billion-rupee median of 40 analysts’ estimates compiled by Bloomberg.
GAIL India Ltd., the biggest natural gas distributor, increased 2 percent to 334.65 rupees, ending a three-day fall. Net income rose 17 percent to 12.8 billion rupees, beating the 10.2 billion rupees estimated by analysts.
Finance Minister Palaniappan Chidambaram, due to announce the budget Feb. 28, has pledged spending curbs to ease price pressures amid wider government efforts to revive investment. Data this week showed factory output contracted for a second month in December and the trade gap swelled to $20 billion in January, one of the nation’s widest monthly deficit. India’s consumer-price inflation reached 10.79 percent last month, the second highest in the Group of 20 major nations.
Prime Minister Manmohan Singh initiated policy changes in September to stimulate investment, ending more than a two-year logjam in economic decision-making. The steps included opening retail and aviation to more foreign participation, paring fuel subsidies, easing caps on capital flows and setting up a panel to accelerate infrastructure projects.
“We need aggressive policy reforms to move higher,” A.K. Prabhakar, senior vice president for equity research at Anand Rathi Financial Services Ltd., said by telephone from Mumbai. “Stocks seem to have priced in all the positives.”
The Sensex increased 26 percent last year, its biggest annual gain in three years, after foreigners bought a net $24.5 billion of stocks last year, the highest among 10 Asian markets tracked by Bloomberg. They bought $151 million of equities on Feb. 13, extending this year’s purchases to a net $7.7 billion, a record for the period, the data show.
The Sensex trades at 13.5 times estimated earnings for the year ending on March 31, 2014, compared with the MSCI Emerging Markets Index’s 10.4 times, data compiled by Bloomberg show. The CNX Nifty Index fell 0.6 percent to 5,896.95.