India Stocks End 2-Day Gain as Banks Slide on Rise in Bad Loans

Updated on
  • HDFC Bank, Kotak Mahindra Bank drop from records after results
  • Foreigners buy $919m of shares in July, surpass June’s $771m

Indian stocks declined for the first time in three days as prospects for global stimulus dimmed and investor concern that the recent rally may have outpaced the outlook for earnings growth resurfaced.

HDFC Bank Ltd. and Kotak Mahindra Bank slid from records as bad loans at the country’s private lenders increased in the June quarter. Axis Bank Ltd. was the worst performer on the benchmark gauge. ITC Ltd., the largest tobacco company, swung between gains and losses before its earnings. Power Grid Corp. tumbled from an all-time high.

The S&P BSE Sensex lost 0.7 percent at the close. Foreign funds have bought a net $919 million of local stocks since July 1, set for the biggest inflow since March, amid signs of an improving economy. While Indian is among emerging-markets to have benefited from prospects for an additional stimulus following Britain’s vote in June to exit the European Union, the purchases have sent the Sensex’s valuation to a 16-month high. That leaves the gauge with little upside if companies report earnings that miss estimates.

“The markets will not be able to sustain these levels without earnings support,” R. K. Gupta, managing director of Taurus Asset Management Co., which oversees $590 million, said from New Delhi. “The earnings season so far has been a mixed bag. Foreign inflows will sustain only if our economic growth and corporate earnings remain high.”  

Earnings Scorecard

Four of the six Sensex companies that have reported June-quarter results so far have disappointed investors. Indian stocks entered a bull market last week, helped by above-normal rain after back-to-back droughts and a recovery in company earnings. Operating profits for companies in the NSE Nifty 50 Index rose about 10 percent in the three months ended March, the most since September 2014, reversing declines in four of the previous five periods, data compiled by Bloomberg show.

European stocks fell after Bank of Japan Governor Haruhiko Kuroda quelled speculation of so-called helicopter money. Kuroda in a BBC Radio 4 program said he sees no need and no possibility of Japan introducing measures that involve the central bank directly funding government spending. His comments precede the European Central Bank’s meeting later today, followed by a press conference by President Mario Draghi.

HDFC Bank decreased 0.3 percent after touching a record earlier. First-quarter profit rose 20 percent to 32.4 billion rupees compared with 32.8 billion rupees estimated by analysts. Gross bad loans were 1.04 percent at the end of the June quarter versus 0.94 percent in the three months ended March. Provisioning for bad loans climbed to 8.67 billion rupees rupees from 7.28 billion rupees a year earlier, the lender said.

Kotak Mahindra Bank slid 2.8 percent, the most since Feb. 11. It posted first-quarter net income of 7.42 billion rupees compared with an estimate of 7.48 billion rupees. Gross bad loans were 2.5 percent up from 2.36 percent at the end of March.

Axis Bank tumbled 3.6 percent, while State Bank of India lost 2.4 percent. ICICI Bank Ltd. retreated 2.1 percent.

ITC closed little changed after swinging 1.5 percent on both sides. Power Grid retreated 3.5 percent after reaching a record on Wednesday.

The Sensex trades at 16.2 times projected 12-month profits, 15 percent higher than its five-year average, data compiled by Bloomberg show.