Indian Stocks Decline as Lenders Retreat Amid Capital Outflows

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Indian stocks dropped, with the benchmark index heading toward a second month of declines, as concern that earnings growth will disappoint mounted and overseas funds pared their holdings of local shares.

ICICI Bank Ltd. tumbled to a six-month low after posting the slowest quarterly profit growth in five years. State Bank of India was the worst performer on the S&P BSE Sensex. Infosys Ltd. extended its loss to a three-month low after the software maker on Friday announced profit that trailed estimates.

The Sensex decreased 1 percent to 27,176.99 at the close, extending last week’s 3.5 percent drop that was the most since the period ended Dec. 12. While five of the seven Sensex firms have posted results so far have matched or exceeded estimates, the gauge’s earnings for the January to March period will fall for a second straight quarter, estimates compiled by Bloomberg show. UBS AG reduced its December target for the CNX Nifty by 4 percent last week.

“Many people thought the change in government will immediately lead to higher growth and higher earnings, and obviously that’s far from the truth,” Sukumar Rajah, chief investment officer for Asian equity at Franklin Templeton Investments, said in an interview with Bloomberg TV India today. “The expectations were too high.”

Global funds have cut holdings of rupee-denominated debt by $322 million this month, headed for the first withdrawal since last April, and have been net sellers of shares on eight of the past nine days amid a row over back taxes.

Tax Notices

Notices have been sent to 68 overseas funds for arrears of 6 billion rupees ($96 million) toward minimum alternate tax (MAT), junior finance minister Jayant Sinha said on Friday. Tax authorities clarified the same day that foreign investors can seek relief using the Double Taxation Avoidance treaties signed between India and their countries of residence. The levy has been scrapped in the financial year started April 1.

“The imposition of on some of the investors was totally unexpected and totally contrary to what the government has been promising,” Rajah said. “This issue affects sentiment.”

State Bank dropped 3.1 percent to the lowest price since March 31, dragging down a gauge of lenders for a third day. The stock has fallen for four straight days, the longest streak of losses since March 26. Infosys decreased 0.5 percent, extending Friday’s 6 percent plunge.

Small Caps Tumble

A gauge of 590 small-sized companies tumbled 2.9 percent to a four-month low, while a measure of medium-sized companies slid to a three-month low. The indexes have returned 38 percent each in the past year, versus a 20 percent climb in the Sensex.

“There was a lot of euphoria in the small- and mid-caps, and these stocks tend to fall more when there’s a correction in large-cap companies,” Paras Bothra, vice president of equity research at Ashika Stock Broking Ltd. in Mumbai, said by phone.

ICICI Bank said profit in the March quarter increased 10 percent to 29.2 billion rupees ($459 million). Gross bad debts rose to 3.78 percent of total advances from 3.03 percent a year earlier.

Maruti Suzuki India Ltd. said net income climbed to 12.8 billion rupees ($201 million) in the quarter ended March. That beat the 10.7 billion-rupee median of 28 analysts’ estimates in a Bloomberg survey. The stock climbed 3 percent.

Overseas investors sold a net $114 million of shares on Friday, paring the year’s inflows to $8.4 billion. They bought $16 billion of stocks in 2014. The Sensex trades at 15.1 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s multiple of 12.8.

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