India Stocks Drop to Six-Month Low on Capital Outflows, Cash Ban

  • Software exporters and telecom companies pace declines
  • Foreigners sell $1.1b in November, most since February

India Needs More Time to Replace Stock of Junk Bills

Indian stocks declined for fourth day in a volatile session amid concern about the economic impact of the government’s recall of high-currency notes and as foreigners continued to sell emerging-market assets amid rising odds of a U.S. interest-rate increase next month.

The S&P BSE Sensex swung between gains and losses of 0.5 percent, while the NSE Nifty 50 Index fell its key 8,100 support level. A gauge of telecom companies lost 2.5 percent, the most among 13 sectoral gauges. Tata Consultancy Services Ltd., Infosys Ltd. and Wipro Ltd. were among the worst performers on the Sensex after an industry body pared the revenue growth forecast for the nation’s software exporters.

IndexChangeSize and Scope
BSE Sensex-0.3%Lowest level since May 25
NSE Nifty 50-0.4%Lowest level in six months
BSE Telecom-2.5%Eight-month low

The Sensex has declined 5 percent since the government’s move last Tuesday to scrap 86 percent of the nation’s currency notes in circulation. While steps have been taken to ease the cash crunch, there’s concern delays in replacing the notes with new bills may prolong the pain in the $2 trillion economy, where about 98 percent of payments are made in cash.

The losses have coincided with turmoil in global markets after Donald Trump’s shock U.S. election victory. Overseas funds have sold $633 million of Indian shares this week, taking outflows this month to $1.1 billion, on course for the most since February. There’s concern American borrowing costs will rise faster than previously forecast.

“Global funds are still cashing out of emerging markets as their currencies weaken against the dollar, which is hurting software stocks,” said Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai. “Trump’s spending plan for infrastructure may be positive for metals demand, which is boosting these stocks.”

Investors are trying to assess the impact of the black money purge on company profits. At risk is a strengthening earnings picture that has seen three straight quarters of gains, after operating profit fell in every quarter of 2015. Finance Minister Arun Jaitley said Nov. 9 the move will damp consumption in the short term.

Operating profit for the Sensex companies has risen 13 percent in the September-quarter reporting season currently underway, after increasing 4 percent and 6 percent in the previous two quarters, according to data compiled by Bloomberg. Net incomes at companies in the index may rise 23 percent over the next 12 months, the data show.

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