India Sensex Drops to Three-Week Low on Factory Output, Infosys
July 12, 2011, 7:41 AM EDTBy Rajhkumar K Shaaw
July 12 (Bloomberg) -- India’s benchmark stock index fell to a three-week low after the factory-production growth slowed and as Infosys Ltd.’s sales forecast missed analysts estimates.
Infosys, the nation’s second-largest software maker, sank the most in three months. Sales in the year to March 31 will range from $7.1 billion to $7.3 billion. That trailed the $7.5 billion average of 56 analyst estimates compiled by Bloomberg. Tata Motors Ltd., the biggest truckmaker, plunged the most in three weeks. Output at factories, utilities and mines rose 5.6 percent in May from a year ago following a revised 5.8 percent gain in April. The median of 27 estimates in a Bloomberg News survey was for an 8.5 percent jump.
The Bombay Stock Exchange Sensitive Index, or Sensex, lost 309.77, or 1.7 percent, to 18,411.62 at the 3:30 p.m. close in Mumbai, the lowest level since June 24. The S&P CNX Nifty Index dropped 1.6 percent to 5,526.15 and its July futures settled at 5,526. The BSE 200 Index slid 1.4 percent to 2,281.14.
The factory output “numbers show that Indian companies are shying away from making investments and are shifting their investments overseas,” said R.K. Gupta, managing director of Taurus Asset Management Ltd., which has $1.1 billion in assets.
Infosys, which gets about 22 percent of its sales from Europe, plunged 4.4 percent to 2,791.55 rupees, its lowest close since June 23. Net income increased 16 percent to 17.2 billion rupees in the quarter ended June from 14.9 billion rupees a year earlier. That was in line with the median analyst estimate compiled by Bloomberg.
Tata Consultancy Services Ltd., India’s largest software maker, lost 1 percent to 1,145.35 rupees and its July futures settled at 1,148.50 rupees. Wipro Ltd., the third-biggest, shed 1.5 percent to 414.6 rupees.
‘Safe Haven’
“Infosys has been disappointing for the past three to four quarters,” said Shishir Bajpai, vice president at IIFL Wealth Management Ltd., which has $1.8 billion in assets under management and advisory. “Some investors may be moving out of Infosys to other information technology stocks as safe haven.”
A weak global market also contributed to the bearish sentiments. Asian and European stocks tumbled amid growing concern Europe’s debt crisis is spreading.
Europe’s finance ministers are struggling to contain the region’s debt crisis, declining to rule out a temporary default in Greece and reviving the prospect of bond buybacks as investors pounded Italy. The crisis may jeopardize earnings for Indian companies already confronted with rising borrowing costs and signs the global economic recovery is slowing.
Some 33 percent of the companies in the Sensex reported profits that missed analysts’ estimates in the March quarter, compared with less than a quarter that did so last year.
‘Poor Results’
Nomura Holdings Inc. said 100 of the 114 companies under its coverage may post an average 4 percent gain in profit for the June quarter. Sales would increase 21.7 percent from a year ago, the brokerage said in a July 8 report.
“By and large, this will be a quarter of poor results,” said Kislay Kanth, head of research at Mape Securities Pvt. in Mumbai. “The impact of Europe’s crisis and the global slowdown is being seen.”
Tata Motors, the owner of Jaguar Land Rover, retreated 2.7 percent to 1,024.9 rupees. Mahindra & Mahindra Ltd., the largest maker of sport-utility vehicles and tractors, decreased 3.2 percent to 703.35 rupees. Larsen & Toubro Ltd., the largest engineering company, plunged 2.9 percent to 1,779.15 rupees.
The Sensex has fallen 10 percent this year, the worst performer among Asia’s 14 largest markets, as India’s central bank raised rates eight times in the past year to cool prices. Sensex companies are valued at 15 times estimated earnings, compared with 10.8 for the MSCI Emerging Markets Index.
‘Margin Contraction’
HSBC Holdings Plc and Credit Suisse Group AG predict the central bank may extend its longest stretch of rate increases in a decade as the government’s move to raise diesel prices last month boosts the rise in living costs to near 10 percent. The next policy announcement is on July 26.
“The margin-contraction story continues and we expect the contraction to bottom out over the next quarter or so,” Pralay Das and Mona Khetan, analysts at Elara Securities wrote in a note dated July 8.
Prime Minister Manmohan Singh reshuffled his Cabinet for the second time in six months in a bid to bolster a government weakened by corruption allegations, high inflation and slowing growth. Singh dropped seven ministers and moved several others.
‘Cosmetic Changes’
The changes are “cosmetic,” said D.K. Aggarwal, who manages about $100 million as chairman of SMC Wealth Management Services Ltd. in New Delhi. “Though there is an attempt to improve the image of the government by dropping some people, it won’t help in any way to take the reform process forward.”
Singh, who Congress party secured its biggest election victory in two decades in May 2009, has had to curtail decision making after a minister, bureaucrats and company officials were jailed over corruption charges. The number of policy approvals by cabinet dropped 39 percent to 33 in the first six months of the year from a year earlier, government data show.
“Growth is slowing and this trend is unlikely to reverse given the geopolitical scenario in the country,” Taurus’ Gupta said. “We haven’t seen enough in terms of decision-making from the government.”
Overseas funds purchased a net 4.74 billion rupees ($107 million) of Indian stocks on July 11, raising total investment in equities this year to 95.7 billion rupees, according to data on the website of the Securities and Exchange Board of India.
--With assistance from Santanu Chakraborty, Shikhar Balwani in Mumbai and Bibhudatta Pradhan in New Delhi. Editor: Ravil Shirodkar
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
