Indian Stocks Near Bear Market as Rupee Weakens on Asia Selloff

  • Sensex falls to 20-month low; erases all gains since Modi win
  • Reliance, State Bank among biggest decliners on Sensex

Indian stocks pared losses that sent the benchmark index to the brink of a bear market in late trade even as the rupee neared its lowest-ever level amid a selloff in Asian equities.

Reliance Industries Ltd., owner of the world’s largest refining complex, slid to a two-week low after third-quarter sales missed estimates. State Bank of India dropped to its lowest level since March 2014, while Axis Bank Ltd. lost 1.4 percent before its results Wednesday. The currency touched 68.1687 per dollar, the lowest since August 2013.

The S&P BSE Sensex came within 0.3 percent of falling into a bear market before paring losses to 1.7 percent at the close. Turmoil returned to global markets as the tumble in oil prices to below $28 a barrel fed concerns over the global economic outlook. An index of developing-nations equities sank to the lowest level since May 2009 and European stocks slid to a 13-month low.

“There is a risk-off environment globally," Mahesh Patil, co-chief investment officer at Birla Sunlife Asset Management Co., which has $20 billion in assets, said in an interview to Bloomberg TV India. “People don’t know when the fall in commodity prices, especially oil, is going to settle." Indian equity gauges can drop a further 5 percent from current levels, and that point will provide “very good support" for the market, he said.

IMF Outlook

Concern over China’s ability to manage a transition to more sustainable growth has driven down global stocks in 2016. The International Monetary Fund cut its world growth outlook, highlighting weaker prospects for commodity-producing countries and the risks tied to the Federal Reserve’s exit from ultra-low interest rates.

Global funds pulled a net $113 million of Indian stocks on Jan. 19, taking this year’s outflows to $1.2 billion. The outflows have pressured the rupee, which has weakened 2.7 percent this month in Asia’s worst performance after South Korea’s won. The Indian currency sank to a record 68.845 on Aug. 28, 2013.

The Sensex has slid 19 percent from its January 2015 peak, nearing the 20 percent level that some investors consider bear-market territory. The gauge has erased all gains recorded after Prime Minister Narendra Modi’s party swept to power in May 2014, as news out of China coincided with the waning of euphoria surrounding Modi’s economic agenda.

Mid Caps Selloff

The selloff has extended to the small- and medium-sized companies, whose fortunes are typically tied to the local economy. The 100-stock Nifty Midcap Index slid to a 13-month low, taking this year’s loss to 10 percent. The gauge trades at 15.3 times projected 12-month earnings, the cheapest since September.

Reliance Industries dropped 3.7 percent, erasing this year’s advance. Third-quarter profit climbed to 72.2 billion rupees ($1.07 billion), beating the 70.1 billion-rupee mean of 17 analyst estimates compiled by Bloomberg, the company said after market hours Tuesday. The company’s shares had climbed 2.9 percent this year through Tuesday, compared with the 6.3 percent decline in the Sensex.

“Reliance had rallied on hopes of a best-ever result," A. K. Prabhakar, head of research at IDBI Capital Capital Market Services Ltd., said in an e-mail. “So, profit-booking is possible." The brokerage has maintained its buy rating on the stock.

Earnings Scorecard

So far, four of the five Sensex companies that have reported earnings for the December quarter have beaten estimates. Fifty-seven percent of Sensex companies in the September quarter posted earnings that matched or beat estimates, versus 60 percent in June, data compiled by Bloomberg show.

State Bank tumbled 5.1 percent, taking this year’s loss to 23 percent. Axis Bank lost 1.4 percent. The lender said after market hours its third-quarter profit rose 15 percent to 21.8 billion, beating the estimated 21 billion rupees.

Tata Steel Ltd. decreased 2.5 percent. Adani Ports & Special Economic Zone Ltd. plunged 5.8 percent, the most since Aug. 24. Coal India Ltd. slid to its lowest since May 2014.

The NSE Nifty 50 Index fell 1.7 percent to 7,309.3, taking losses from its March 2015 peak to 18.8 percent. The gauge could rebound to 7,500 in the near term after taking support at 7,200 to 7,250, Sahil Kapoor, chief market strategist at Edelweiss Broking Ltd., said by e-mail on Wednesday.

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