Indian Stocks Retreat as Hind Unilever Earnings Trail Estimates

  • Bharti, Idea Cellular tumble after cutting data tariffs
  • Government, Congress still to agree on changes to GST bill

India’s benchmark stock index dropped from an 11-month high after the nation’s largest telecom companies cut tariffs and quarterly earnings from the biggest consumer company disappointed investors.

Mobile-phone operators Bharti Airtel Ltd. and Idea Cellular Ltd. were among the worst performers on the MSCI Asia Pacific Excluding Japan index after lowering data prices before Billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. launches its services. Reliance Industries Ltd., which operates the world’s biggest refinery complex, erased gains of as much as 2.7 percent. Hindustan Unilever Ltd. tumbled the most in five weeks after reporting profit and revenue that lagged behind estimates.

The S&P BSE Sensex dropped 0.3 percent at the close, erasing an intraday advance of 0.6 percent. Investor attention has turned to the June-quarter results season for signs that stock valuations near a five-year high are supported by company earnings. An indication from former Finance Minister P. Chidambaram that the ruling Bharatiya Janata Party and the main opposition have not yet reached a compromise that will enable the passage of the unified sales tax bill in the monsoon session of parliament also weighed on sentiment.

“India is not a cheap market so any disappointment in corporate earnings recovery or a delay in the government implementing key reforms could add to volatility," Kristy Fong, a Singapore-based assistant investment manager at Aberdeen Asset Management Plc., said by e-mail. “There’s high expectation for corporate earnings growth. We have to see that come through for current levels to be supported.”

Big Reform

Prime Minister Narendra Modi is banking on the passage of the GST bill in current session of parliament that began Monday to bolster economic growth. The proposal, the nation’s biggest tax reform in decades, has been blocked by the Congress party in the upper house where it is in majority for more than a year. Congress leader Chidambaram said the party is waiting for the government to include its suggested changes to the proposed bill.

The Sensex entered a bull market last week, helped by forecasts for above-normal rain after back-to-back droughts and a recovery in company earnings. The advance sent the gauge’s 14-day relative strength index to 72 on Thursday, above the 70 level that some investors see as a signal to sell. Valuation rose to 16.4 times projected 12-month profits, 15 percent higher than its five-year average, data compiled by Bloomberg show.

Foreign Inflows

Still, overseas funds bought $211 million of shares on July 15, the sixth straight day of net purchases. They’ve invested $3.6 billion in Indian stocks so far this year, the most after Taiwan and South Korea, data compiled by Bloomberg show.

“We continue to like the India story, which presents tremendous growth opportunities in the long term,” Aberdeen’s Fong said.

Bharti Airtel tumbled 4.3 percent, the most since April 5, and Idea Cellular slumped 6.5 percent, the steepest drop since June 3.

Airtel will offer prepaid customers as much as 67 percent more data at the same cost, the India’s largest mobile company said Sunday. Idea, the third-biggest carrier controlled by billionaire Kumar Mangalam Birla’s Aditya Birla group, is offering as much as 45 percent more data, the mobile company said July 15.

Reliance Jio, whose strategy is to offer high-speed data cheaply to lure users, faces a rate fight even before starting operations as it missed multiple deadlines, giving rivals time to improve their networks and come up with revised plans.

Hindustan Unilever decreased 2.1 percent, the most since June 9. The company reported first-quarter profit of 11.7 billion rupees, which missed the 11.5 billion rupees estimated by analysts. Sales of 81.3 billion rupees were less than the 85.2 billion rupees forecast in a Bloomberg survey.

Reliance Industries dropped 0.6 percent. The stock had climbed in early trading after the company posted a 19 percent jump in first-quarter profit after markets hours Friday.

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