India Stocks Drop to 19-Month Low as Global Funds Sell

  • Foreigners withdraw $498 million amid rout in Asian equities
  • Banks tumble as IndusInd and Federal Bank report higher NPAs

Indian stocks extended losses from a 19-month low, tracking declines in Asian equities, as lenders retreated after IndusInd Bank Ltd. and Federal Bank Ltd. reported increases in bad loans.

IndusInd tumbled to a two-month low and Federal Bank slid to its lowest price since May 2014. State Bank of India fell for a seventh day, the longest run of losses since February, while Axis Bank Ltd. was the worst performer on the S&P BSE Sensex. Tata Consultancy Services Ltd., India’s top software exporter, decreased to five-week low before it kicks off the quarterly earnings season.

The Sensex slid 0.6 percent to the lowest close since May 2014. The gauge has retreated 5.5 percent in January, poised for a third monthly loss, as overseas investors sold riskier assets amid a turmoil in China’s stocks and currency. The Sensex has erased nearly all gains recorded after Prime Minister Narendra Modi’s party swept to power in May 2014, as euphoria over his economic agenda waned.

“Most foreign investors see China as all of Asia and are pulling out of emerging markets without drilling down to country or company-specific level,” Anil Ahuja, chief executive officer of IPEplus Advisors in Singapore, said in an interview with Bloomberg TV India on Tuesday. “Even the local Chinese money is trying to leave China, which means there’s going to be a huge demand for the U.S. dollar. And that cannot possibly be good for India, except for some exporters.”

Overseas investors sold a net $157 million of Indian stocks on Jan. 11, taking outflows this month to $498 million after they bought local equities for four years. They’ve pulled $801 million from South Korea, $1.56 billion from Taiwan and $228 million from Thailand, data compiled by Bloomberg show.

Bad Debts Mount

IndusInd slid 2.5 percent to its lowest level since Nov. 18. Gross bad-loan ratio widened to 0.82 percent in the December quarter from 0.77 percent at end-September. Bad loan provisions rose to 1.77 billion rupees from 980 million rupees a year ago.

Federal Bank plunged 7.7 percent to its lowest level since May 2014. Gross bad loans rose to 3.15 percent from 2.9 percent in end-September. State Bank of India fell 2.4 percent, while Axis Bank declined 2.7 percent.

Tata Consultancy will probably report a 10 percent gain in profit for the December quarter from an year ago, according to the mean of 21 analyst estimates in a Bloomberg survey. The shares slid 1.5 percent.

Earnings Expectations

In the July-to-September period, 57 percent of Sensex companies reported earnings that matched or beat estimates, compared with 60 percent in the June quarter, data compiled by Bloomberg show.

“Big expectations of company earnings growing at 20 percent annually from 16 to 17 percent are not going to materialize, and if price-earnings contract, then that’s another headwind we are going to have to deal with,” IPEplus’s Ahuja said.

The losses have dragged down the Sensex’s 14-day relative-strength index close to the threshold of 30, which to some traders signals a security has fallen too far. The Sensex rebounded 4.5 percent after the RSI fell to 28.5 on Dec. 9. Optimism may return if the government announces growth-boosting measures in its federal budget due at the end of February, Ahuja said.

The Sensex trades at 14.8 times its projected 12-month earnings, compared with a multiple of 10.4 for the MSCI Emerging Markets Index.

(Corrects date in fifth paragraph.)
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