Indian Stocks, Rupee Retreat as Bets of U.S. Rate Hike Increase

  • Sensex falls to three-month low; rupee falls most since June
  • Fed minutes show September decision to hold was close call

Indian equities and the currency fell as trading resumed after a two-day holiday, mirroring losses in global stocks after Federal Reserve minutes boosted the case for tighter monetary policy before the year-end and China export data signaled a deeper slowdown.

The MSCI All-Country World Index headed for an almost three-month low, while a gauge of developing markets slid for a third day after Chinese exports unexpectedly shrank the most in seven months. The data came just as minutes of the Fed’s September meeting showed the decision to keep rates on hold was a close call, with three members voting to raise.

IndexChangeSize & Scope
BSE Sensex-1.6%Three-month low
NSE Nifty 50-1%Seven-week low
S&P BSE MidCap-1.5%Two-week low
S&P BSE Bankex-2.2%Two-month low

“A rate hike by the Fed looks imminent,” Paras Bothra, vice president of equity research at Ashika Stock Broking Ltd., said by phone from Mumbai. “The Fed rate outlook and the U.S. elections are the short-term worries and will keep the market in check.”

Higher U.S. rates may damp flows to emerging markets, cooling demand for riskier assets. Global funds have bought $7.8 billion of Indian equities since Jan. 1, surpassing last year’s purchases of $3.3 billion. While the inflows have helped the benchmark gauges rebound 20 percent from a February low, the recovery in company earnings has been uneven.

“Investors are wary of deploying fresh money as valuations look steep and earnings will take time to catch up,” Sunil Sharma, chief investment officer at Mumbai-based Sanctum Wealth Management Ltd., said by phone.

The September-quarter earnings season began Thursday, with Tata Consultancy Services Ltd., Asia’s top software exporter, reporting after trading ended. Second-quarter profit of 65.9 billion rupees ($985 million) beat the 63 billion-rupee mean of estimates compiled by Bloomberg. The stock dropped 2.2 percent to a one-month low before the announcement.

Earnings Outlook

Infosys Ltd., the nation’s second-biggest software company, climbed to a seven-week high. The company is due to report before trading begins on Friday.

The Sensex trades at 16.3 times projected 12-month earnings, down from a multiple of 16.7 time last month, which was the most expensive since January 2011. Operating profit for 30 companies on the gauge rose about 4 percent in the three months ended June, halving from an 8 percent growth seen in the previous quarter, data compiled by Bloomberg show.
“We don’t expect a blockbuster earnings season this quarter,” Bothra said. “It will be in line with expectations. Earnings over the next two quarters will be better as the impact of a good monsoon, the increase in government staff salaries and spending on infrastructure will come into play.”

The rupee posted its biggest decline in more than three months, weakening 0.6 percent to 66.9350 per dollar. The yield on sovereign bonds due September 2026 rose two basis points to 6.73 percent, according to the Reserve Bank of India’s trading system.

The government is due to announce the retail inflation data later on Thursday. The rate fell to 4.6 percent in September from 5.1 percent a month earlier, according to the median estimate of 33 economists in a Bloomberg survey.

  • Adani Ports & Special Economic Zone Ltd. was the biggest decliner on the Sensex, tumbling 4.9 percent; Tata Motors Ltd., owner of Jaguar Land Rover, lost 3 percent; Reliance Industries Ltd., owner of the world’s largest refining complex, tumbled 3.6 percent.

  • ICICI Bank Ltd. slid 3.6 percent in a fifth day of retreat, while Housing Development Finance Corp., the biggest mortgage lender, lost 3.8 percent.

  • Cipla Ltd. rose to a one-week high after the U.S. Food & Drug Administration closed an inspection of the pharmaceutical company’s Indore plant

  • J&K Bank slumped 14 percent, most since February 2015, after newly appointed CEO Parvez Ahmed yesterday dispelled public fears on ‘unprecedented’ levels of bad loans and stressed assets at the bank, according to a statement on website

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