India’s Sensex Has Worst Week in 2 Months on Earnings, Valuation

Indian equities declined, with the benchmark index posting its biggest weekly drop since November, amid concern the recent rally has made valuations expensive and as earnings for some companies trailed analysts’ forecasts.

The BSE India Sensitive Index, or Sensex, slid 0.6 percent to 19,781.19 at the close. The 30-stock gauge lost 1.6 percent this week, the most since the week ended Nov. 16. Bharti Airtel Ltd., India’s largest cell-phone operator, sank 3 percent in a seventh day of losses as profit trailed estimates. Bharat Heavy Electricals Ltd. retreated 1.2 percent after the country’s biggest power-equipment maker reported a worse-than-expected 17 percent drop in earnings.

“Earnings have to play a supporting role for the markets to scale higher,” Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt., said by phone from Mumbai today. “Investors should use these dips as an opportunity to buy as the overall trend remains positive.”

The Sensex completed a third month of gains yesterday as foreign funds purchased a net $4.1 billion of local shares in January, a record for the period, according to data compiled by Bloomberg. The 30-stock gauge trades at 15.8 times estimated earnings, near the highest level in a year, the data show. The MSCI Emerging Markets Index is valued at 11 times.

Five out of 17, or 29 percent, of Sensex firms that have posted December-quarter earnings have trailed estimates, compared with 40 percent in the previous two quarters.

“We’ve had a sharp price-to-earnings expansion, now we need to see an earnings expansion,” Arvind Sanger, managing partner at Geosphere Capital Management LLC., told Bloomberg TV India yesterday. “The real issue is fundamentals must follow.”

Profit Decline

Bharti slumped 3 percent to 329.40 rupees, completing the longest stretch of losses since August 2011. Third-quarter net income declined to 2.84 billion rupees ($53 million), missing the 8.39 billion-rupee median of analysts’ estimates in a Bloomberg survey.

Bharat Heavy lost 1.2 percent to 225 rupees. Net income fell to 11.8 billion rupees in the December quarter. The median of 34 analyst estimates compiled by Bloomberg was 13.5 billion rupees. Sales dropped almost 5 percent.

Tata Motors Ltd., the owner of Jaguar Land Rover luxury brands, sank 10 percent intraday before recovering to close 5.5 percent lower at 281.65 rupees. UltraTech Cement Ltd., which is not a Sensex member, also tumbled 10 percent before ending the day 3.4 percent lower at 1,837.75 rupees. Tata Motors’ January sales plunged 30 percent from a year earlier, the company said in a statement after markets closed.

The National Stock Exchange of India Ltd. is investigating the plunge in the shares of the two companies, spokeswoman Divya Malik Lahiri said by phone.

Sensex Volumes

Oil & Natural Gas Corp., the largest Indian non-state-run explorer, lost 2.2 percent to 332.2 rupees after rallying 27 percent last month, its biggest monthly increase since May 2009.

Volumes on the Sensex were 41 percent higher than the 30-day average today. The S&P CNX Nifty Index on the NSE fell 0.6 percent to 5,998.90, while its February futures settled at 6,036.10. India VIX, which measures the cost of protection against losses in the Nifty, dropped for a fourth day, falling 2.6 percent to 13.76.

India became the first major Asian economy to cut interest rates in 2013 on Jan. 29, when the Reserve Bank of India pared its key repurchase rate by 25 basis points to 7.75 percent, the first reduction since April 2012. The rate decision came after inflation eased to a three-year low in December. The RBI still lowered its forecast for economic growth for the year ending March to 5.5 percent from 5.8 percent.

“I don’t think the growth dynamic in India is about to leap off the pages because the RBI has cut rates,” Geosphere’s Sanger said. “There are issues that are not yet resolved.”

Foreign funds bought a net $24.5 billion of shares last year, the most among 10 Asian markets tracked by Bloomberg, lured by government efforts to cut subsidies, allow higher foreign investment in some sectors and speed up infrastructure projects to revive growth. That helped the Sensex jump 26 percent in 2012, its biggest annual gain since 2009.

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