Indian Stocks at the Brink of Bear Market as Asian Rout Deepens

  • Tata Motors, State Bank are among worst performers on Sensex
  • Foreign investors withdraw $1.8 billion from equities in 2016

People walk past a BSE logo at the Bombay Stock Exchange (BSE) building in Mumbai, India, on Thursday, January 23, 2014.

Photographer: Vivek Prakash/Bloomberg

Indian stocks dropped to a 21-month low, dragging the benchmark gauge to the edge of a bear market, as industrials and lenders extended declines in a global equity rout sparked by concerns about China’s economy and tumbling commodity prices.

Tata Motors Ltd., the owner of Jaguar Land Rover, slid the most in more than five months. State Bank of India, the nation’s biggest lender, fell to a two-year low before its earnings report on Thursday. Drugmaker Cipla Ltd. tumbled 3.1 percent and Adani Ports & Special Economic Zone Ltd. retreated to its lowest since May 2014. DLF Ltd., the top developer, plunged to a record low.

The S&P BSE Sensex lost 1.1 percent to close within 0.1 percent of a bear market. The gauge has tumbled about 20 percent from its January 2015 peak, meeting the common definition of a bear market. Stocks from Europe to Japan and China have already fallen into this category. Global funds have pulled$1.8 billion from Indian shares since Jan. 1 as anxiety over the health of the global economy saps demand for riskier assets. Federal Reserve Chair Janet Yellen testifies before the U.S. Congress Wednesday.

“The global cues continue to disappoint and traders are not in a position to take a view on the market in light of the heightened volatility," Vivek Mahajan, head of Research at Aditya Birla Money Ltd., said in an interview to Bloomberg TV India. “Investors would be looking forward to Yellen’s address keenly."

Investors are focusing on Yellen’s semi-annual testimony to Congress starting Wednesday for signals on the likely pace of U.S. monetary tightening after a volatile start to the year amid concerns about China’s ability to manage its economic slowdown. The speech follows Bank of Japan’s surprise shift to negative interest rates in late January and the European Central Bank’s signal it will deploy new stimulus next month.

Earnings Scorecard

Cipla Ltd. reported after markets hours third-quarter profit of 3.43 billion rupees, missing the 4 billion rupees estimated by analysts in a Bloomberg survey. The company’s shares have retreated 17 percent this year, double the loss in a gauge of health-care companies.

So far, 11 out of 21 Sensex companies have reported earnings for the December quarter that 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. The shares were little changed.

Bad Loans

State Bank tumbled 4.8 percent, taking this year’s slump to 29 percent, the most on the Sensex. Credit-default swaps protecting the lender’s debt against non-payment for five years jumped to 202 basis points on Tuesday, the highest since August 2014, according to prices data provider CMA. The contracts, considered a proxy for the sovereign, have risen 20 basis points in their biggest two-day advance since Jan. 21.

“Investors are worried about a possible surge in the bad loan provisions at SBI,” said Hatim Broachwala, Mumbai-based banking analyst at Nirmal Bang Institutional Equities Ltd. “A sharp deterioration in asset quality at state-run banks that have reported earnings so far has added to this concern.”

Tata Motors plunged 6.2 percent to its lowest level since Sept. 29. The stock has lost 25 percent this year. Oil & Natural Gas Corp. decreased 2.1 percent. Dr. Reddy’s Laboratories Ltd.plunged 2.5 percent in a third day of retreat. Adani Ports plunged 3.6 percent to its lowest price since May 2014. DLF fell 5.3 percent to its lowest level since its 2007 listing. The S&P BSE India Realty Index was the biggest loser among sectoral indexes tracked by BSE Ltd.

The Sensex has plunged 9 percent this year and trades at 14.6 times its projected 12-month earnings, compared with a multiple of 10.7 for the MSCI Emerging Markets Index.

Markets in China, Hong Kong, Taiwan, South Korea, and Vietnam remain closed for Lunar New Year holidays.

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