Indian Stocks Retreat to a Three-Month Low on Earnings Concern

  • ICICI Bank soars most since March on Essar debt recovery hopes
  • Investors are focused on September-quarter earnings season

Indian equities extended last week’s declines as data showing overseas funds sold domestic shares amid a tepid start to the quarterly earnings season weighed on sentiment.

Automakers and industrials declined, offsetting gains in lenders, while a gauge of medium-sized companies slid to a two-week low. Losses in European and emerging-market equities added to the skittishness.

IndexChangeSize and scope
BSE Sensex-0.5%Three-month low
NSE Nifty 50-0.7%2nd decline in three days
S&P BSE Bankex+0.5%Most in two weeks
S&P BSE Cap Goods-1.5%Fifth fall in six days

The benchmark stock gauges lost at least 1.3 percent last week after September-quarter results from Infosys Ltd. and Tata Consultancy Services Ltd. lagged behind expectations. Investors are focused on company earnings to validate whether valuations that rose to a five-year high last month are justified. Reliance Industries Ltd., the owner of the world’s largest refining complex, is among companies due to report this week.

“Companies that have reported have only met their profit estimates and the guidance is not up to the mark,” said A. K. Prabhakar, head of research at IDBI Capital Market Services Ltd. “People are trying to take profit where they can. Even a rally in ICICI Bank couldn’t save the day for the market.”

ICICI Bank Ltd., the nation’s largest private-sector lender, surged the most since March on optimism the lender will recover some of its loans to the Essar Group. Prospects for loan recoveries rose after Essar agreed to sell its refinery unit to Rosneft PJSC, Russia’s biggest listed oil producer, and a group led by Trafigura for about $13 billion. ICICI was the best performer on the Sensex on Monday.

Fed Odds

Foreigners sold $341 million of Indian shares in the past three sessions, the longest streak of withdrawals in more than three weeks. Global investors are holding off taking fresh bets as they seek clues from key economic data on the trajectory of monetary policy. Federal Reserve Chair Janet Yellen signaled Friday the central bank will remain deliberate in raising rates as the odds for tightening in December hovered at 66 percent.

Flows to emerging markets may slow if U.S. raises rates. Foreigners have bought $7.6 billion of stocks since Jan. 1, surpassing last year’s $3.3 billion inflow. While equities have rebound 20 percent from a low reached in February, growth in company earnings has been weak.

Operating profit for the companies on the Sensex rose about 4 percent in the three months ended June, compared with an 8 percent growth in the previous quarter, according to data compiled by Bloomberg. The gauge trades at 16.2 times projected 12-month earnings, down from 16.7 times last month, which was the most expensive since January 2011. The MSCI Emerging Markets Index is valued at 12.31 times.

  • ICICI Bank surged 7 percent, while Axis Bank Ltd. gained 2.5 percent intraday before dropping 0.3 percent in late trade. Standard Chartered Plc’s India depository receipts increased 1.6 percent, halting two days of declines.
    “ICICI, Axis and Standard Chartered will be first to get repaid once money comes in from Essar’s refinery sale,” Rethish Varma, head of research at Bengaluru-based Aditya Trading Solutions, said by phone.
    The transaction will help Essar reduce debt by more than half, Prashant Ruia, a director at the conglomerate, said over the weekend. All approvals are expected by the year-end and most of the proceeds will go to repay debt, he said.

  • Mahindra & Mahindra Ltd., Hero MotoCorp Ltd. and Asian Paints Ltd. were the top losers on the Sensex, with losses exceeding 2 percent.

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