India Stocks Set for Bear Market as State Bank Slumps on Results

  • Hero MotoCorp, ONGC among Sensex companies reporting results
  • U.S. Fed says conditions turned less supportive of growth

Indian stocks dropped for a fourth day, with the benchmark index poised to enter a bear market, after the nation’s largest lender missed earnings estimates.

State Bank of India erased gains of more than 5 percent after its earnings dropped 62 percent from a year earlier. Cipla Ltd. tumbled to its lowest level since August 2014 after the drugmaker’s profit missed estimates. Bharat Heavy Electricals Ltd., the largest power-equipment maker, fell for a fourth day before its fiscal-third quarter results.

The S&P BSE Sensex tumbled 2.2 percent at 1:55 p.m. in Mumbai. The gauge closed within 0.1 percent of a bear market on Wednesday, having fallen 20 percent from its January 2015 record. Overseas investors have sold a net $1.9 billion of domestic shares this year as demand for emerging-market assets waned and investor anxiety grew over the global economic outlook.

“Emerging-market funds are facing redemptions and India is still overweight among these funds, and that’s a negative,” Sanjeev Prasad, the Singapore-based co-head and senior executive director at Kotak Institutional Equities, said in an interview with Bloomberg TV India on Thursday. “Valuations have become reasonable, but I don’t think anybody has the confidence to buy because money is constantly flowing out of EM funds.”

Fed Rates

Federal Reserve Chair Janet Yellen on Wednesday highlighted uncertainty over the pace of China’s growth and the related rout in commodities, concerns that have roiled financial markets throughout the year and twice pushed global shares to the brink of a bear market. Yellen told Congress the Fed still expects to raise rates gradually while making it clear that continued market turmoil may alter its forecasts.

The Sensex has plunged 10 percent this year and trades at 14.4 times its projected 12-month earnings, the cheapest since September.

Finance Minister Arun Jaitley will present the budget on Feb. 29. Economists surveyed by Bloomberg expect him to meet the government’s fiscal deficit target for the year ending March 31, while slightly pushing back next year’s goal to 3.6 percent of gross domestic product. The Reserve Bank of India left borrowing costs unchanged this month after four cuts in 2015. Governor Raghuram Rajan said his next move would depend on inflationary trends and the federal budget.

“Too much is now dependent on the budget and it looks like the budget will not have much in store for the market," Ajay Bagga, an independent market analyst, said in an interview with Bloomberg TV India. “It’s best to wait on the sidelines."

Earnings Scorecard

Eleven of the 22 Sensex companies, or 50 percent, that have posted December-quarter earnings so far have beaten estimates. That compares with 57 percent of index members whose profits beat or matched forecasts in September, and 60 percent in June, data compiled by Bloomberg show.

Cipla tumbled 3.6 percent after the drugmaker reported a fiscal third-quarter profit of 3.43 billion rupees ($51 million) after the close of trading hours on Wednesday, missing the 4 billion rupees estimated by analysts in a Bloomberg survey. The stock has retreated 20 percent this year.

Bad Debts

State Bank slid 2.6 percent in a third day of declines, erasing gains of as much as 5.4 percent. The lender posted third-quarter profit of 11.2 billion rupees, down 62 percent from a year ago, and less than the 33 billion-rupee mean estimate of 29 analysts in a Bloomberg survey.

The bank’s gross bad-loan ratio widened to 5.1 percent from 4.15 percent in the previous quarter. State Bank will hold a conference call with analysts later today.

“The 5 percent bad-loan ratio is positive in a way because the expectation was like 6 percent to 6.5 percent,” Suruchi Jain, an analyst at Morningstar Inc., said in an interview to Bloomberg TV India.

Tata Motors could say earnings dropped 16 percent to 29.9 billion rupees, according to an average estimate of 26 analysts in a Bloomberg survey. The shares dropped 1.4 percent.

Oil & Natural Gas Corp., India’s largest state explorer, is expected to report net income rose 7 percent to 38.3 billion rupees, according to the median estimate of 27 analysts in a Bloomberg survey. The shares tumbled 4.6 percent, the worst performer on the Sensex.

Bharat Heavy Electricals slid 1.6 percent to its lowest level since Sept. 3, 2013. Coal India retreated 1.5 percent.

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