India's Sensex Drops as Asia Stock Rout Overwhelms Infosys Rally

  • Infosys rallies after earnings beat estimates, guidance raised
  • Global funds remain net sellers for seventh straight day

Indian stocks declined for a third day this week in a volatile trading session as Asian equities retreated amid persistent anxiety over China and foreign investors withdrew more money from local shares.

Tata Steel Ltd. retreated to a five-week low, while Tata Motors Ltd., owner of Jaguar Land Rover, fell the most in a week. Larsen & Toubro Ltd.and Bharat Heavy Electricals Ltd., the nation’s largest engineering companies, decreased to almost two-year lows. Infosys Ltd. surged the most in six months after its quarterly profit beat estimates and the second-largest software exporter raised its sales growth forecast.

The S&P BSE Sensex lost 0.3 percent to 24,772.97 at the close in Mumbai, after changing direction at least 10 times. The index pared an intraday loss of 1.5 percent after Infosys, which has the highest weighting in the gauge, reported results. The Sensex has slid 5.2 percent this month as foreigners sold $557 million of stocks and concerns that China’s market turmoil will spread to Asia’s third-biggest economy.

“The Indian economy and stock markets are not decoupled from the global economy, and if China slows down then we cannot be immune to it,” Saurabh Mukherjea, chief executive officer of institutional equities at Ambit Capital Pvt. in Mumbai, said in an interview on Thursday. “China is after all India’s biggest trading partner.” There’s “high probability” of the Sensex falling to 22,000 over the next three to six months, he said.

The MSCI Asia Pacific Index fell to a three-year low and Chinese stocks pulled back from the brink of a bear market in a late-day swing as the lowest valuations in four months lured bargain hunters.

Mid Caps Valuation

Shares of the nation’s smaller companies tumbled for a second day amid concern over higher valuations. The S&P BSE SmallCap index dropped 1.3 percent, while a gauge of mid-cap shares lost 1 percent. The Sensex trades at 18.8 times reported earnings, the cheapest in three years versus the mid-cap gauge, which is valued at 25 times. The small-cap index has a multiple of 56.

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 and opposition parties blocked bills on a national sales tax and a new bankruptcy code.

Losing Steam

Factory output recorded its first contraction for 2015, shrinking 3.2 percent in November compared with an estimated 2 percent gain, data showed Tuesday. India’s economy will grow 7 percent to 7.5 percent this fiscal year, the government said in December, paring the pace from its previous forecast of 8 percent.

“About 85 percent of the capital expenditure in India is by the private sector and we’re not seeing much of a pick up,” Mukherjea said. “The banking sector is under stress. The economy is losing steam.”

Infosys reported a 6.6 percent increase in December-quarter profit and raised its sales growth outlook for the year to March 31. The shares jumped 4.6 percent, after climbing 3.2 percent on Wednesday.

“Infosys’ guidance is inspiring confidence as it shows that Indian software companies are able to garner business in a challenging global environment,” Deven Choksey, managing director at Mumbai-based K.R. Choksey Shares & Securities Pvt., said in an interview with Bloomberg TV India on Thursday. “The stock will be re-rated despite the difficult market conditions.”

Tata Steel plunged 3.2 percent, extending its losses over the past year to 37 percent. Tata Motors decreased 2.8 percent. Larsen retreated 1.9 percent to its lowest level since March 2014. Bharat Heavy lost 3.1 percent to its lowest since November 2013.

Global funds sold a net $60 million of Indian stocks on Jan. 12, a seventh day of outflows. They bought $3.3 billion of shares last year, the smallest in four years. The Sensex trades at 14.9 times its projected 12-month earnings, versus a multiple of 10.4 for the MSCI Emerging Markets Index.

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