Indian Stocks Drop for Third Week on Earnings Concern

Indian stocks dropped for a third week as earnings at some of the country’s biggest companies missed analysts’ estimates.

The BSE India Sensitive Index, or Sensex, lost 0.2 percent to 19,468.15 at the close. The gauge declined 0.1 percent this week, paring its year-to-date advance to 0.2 percent. Reliance Industries Ltd., owner of the world’s largest refining complex, retreated to a one-month low. Dr. Reddy’s Laboratories Ltd. slid after earnings missed estimates. Tata Steel Ltd. and Bajaj Auto Ltd. fell more than 1 percent each.

Profits at 43 percent of the 30 Sensex companies trailed forecasts in the December quarter, compared with 40 percent in the previous two quarters, data compiled by Bloomberg show. The statistics office on Feb. 7 said growth this year would be the weakest in a decade and data this week showed industrial output fell for a second month in December. The Sensex trades at 13.5 times estimated earnings for the year to March 2014, compared with a multiple of 10.4 for the MSCI Emerging Markets Index.

“Valuations are not cheap and you have a slowdown which will continue to hurt,” Anand Shah, chief investment officer at BNP Paribas Asset Management India Pvt., which manages $590 million in assets, said in an interview to Bloomberg TV India. “One should not expect last year’s rally to sustain given the macro headwinds.”

The Sensex rallied 26 percent in 2012, its biggest annual gain since 2009, as the government boosted measures to revive the economy. Gross domestic product will expand 5 percent this fiscal year ending March, below last year’s 6.2 percent and the least since the 4 percent growth in 2002-2003, data showed Feb. 7. Consumer-price index reached 10.79 percent in January, the second highest in the Group of 20 major nations, data showed this week.

‘Very Vulnerable’

Inflation remains “high,” investment has declined and the “external sector is very vulnerable,” the Reserve Bank of India said Feb. 11. These risks limited the central bank to a quarter-point reduction in interest rates to 7.75 percent in January, the first cut since April last year.

Net income at Dr. Reddy’s fell 29 percent to 3.63 billion rupees, lagging behind the 4.29 billion rupees estimated by analysts. The stock decreased 3 percent to 1,818.9 rupees.

Overseas funds have still remained net buyers, plowing a net $7.85 billion into local shares this year, a record for the period, data compiled by Bloomberg show. They purchased $24.5 billion of stocks last year, the highest among 10 Asian markets tracked by Bloomberg. Asian equity funds attracted $535 million in the week to Feb. 13, a 23rd week of inflows, Citigroup Inc. said in a report today.

‘Misplaced Hopes’

“A massive deluge of liquidity can take the market higher in the short term, but to make a fundamental bet on the market based on the economy you would run ahead of yourself,” Prabhat Awasthi, head of equity research at Nomura Holdings Inc., told Bloomberg TV India in Mumbai today. “If the argument has been based on economic recovery, then those hopes are misplaced.”

Reliance Industries lost 1.2 percent to 845.8 rupees. Tata Steel, the biggest producer of the alloy, decreased 1.3 percent to 376.1 rupees. Bajaj Auto, India’s second-largest motorcycle maker, lost 1.6 percent to 1,970.35 rupees.

Volume on the Sensex was 16 percent less than the 30-day average at the close. The 50-stock CNX Nifty Index of the National Stock Exchange declined 0.2 percent to 5,887.4. India VIX, which measures the cost of protection against losses in the Nifty, rose 1 percent.

(Corrects Sensex’s year-to-date gain in first paragraph in story published Feb. 15.)
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