Bloomberg News

India Stock Futures Drop as Growth Concerns Dim Earnings Outlook

September 29, 2011

Sept. 30 (Bloomberg) -- India’s stock-index futures fell, signaling a loss in benchmark indexes, after U.S. reports failed to ease growth concerns, and as accelerating inflation and interest rates dim the outlook for earnings, pushing shares toward the worst quarterly loss in almost three years.

SGX S&P CNX Nifty Index futures for October delivery declined 38 points, or 0.8 percent, to 4,998 at 10:25 a.m. in Singapore. The futures are derived from the 50 stocks on the underlying S&P CNX Nifty Index on the National Stock Exchange of India, which rose 1.4 percent to 5,015.45 yesterday. The BSE India Sensitive Index gained 1.5 percent to 16,698.07. The two gauges have dropped 11 percent this quarter, heading for the biggest loss since the three months ended December 2008.

Applications for U.S. jobless benefits dropped by 37,000 last week to 391,000, the fewest since April, Labor Department figures showed, while a separate report showed the number of contracts to purchase previously owned U.S. homes fell 1.2 percent in August. Indian food prices accelerated for the first time in four weeks, the government said yesterday, maintaining pressure on the central bank to raise interest rates further even as company profits slow.

“While a global macro would likely be the single biggest sentiment driver for Indian equities in the short term, investors are concerned about politics, a slowdown in investment demand, continued inflationary pressures and corporate earnings,” CLSA Asia Pacific Markets said in a report.

Food Prices

An index measuring wholesale prices of agricultural products gained 9.13 percent in the week ended Sept. 17 from a year earlier, the commerce ministry said. It rose 8.84 percent the previous week. Food has a weighting of about 14 percent in the wholesale-price index, which India uses as its price gauge.

The nation’s wholesale-price inflation reached a 13-month high of 9.78 percent in August, staying above 9 percent for a ninth month, prompting the Reserve Bank of India to raise rates on Sept. 16 for a 12th time since March 2010.

“Inflation has not eased down,” K.N. Rahaman, deputy research head at Way2Wealth Brokers Pvt., said in a telephone interview yesterday. “We foresee another interest-rate hike if inflation stays stubborn.”

The inflation rate remains above the level the central bank deems acceptable, Governor Duvvuri Subbarao said on Sept. 26, underscoring that pressure remains for monetary tightening in Asia’s third-largest economy. The central bank meets for a next policy review on Oct. 25.

Company Earnings

The Sensex has declined 19 percent this year on concern the rate increases may compound the effects of Europe’s sovereign- debt crisis and slowing U.S. growth on corporate profits. Companies on the gauge trade at 14.1 times estimated earnings, compared with 9.5 times on the MSCI Emerging Markets Index.

Earnings for 47 percent of Sensex companies missed analyst estimates in the three months ended June, according to Bloomberg data. That compares with 33 percent that lagged behind forecasts in the previous quarter.

Infosys Ltd., India’s second-biggest software-services provider, will announce results on Oct. 12, the first company in the Nifty to post earnings for the quarter ending Sept. 30.

“I don’t think that the market is suddenly going to react very positively to earnings,” Vibhav Kapoor, group chief investment officer at IL&FS Investmart Financial Ltd., said in an interview with Bloomberg UTV yesterday. “There is still going to be a lot of concern on how things are going to go into the third and fourth quarter. I don’t think it’s going to lead to a great upside.”

Monsoon Boost

Still, monsoon rainfall in India, the world’s second- biggest producer of rice, wheat and sugar, was above normal for a second year, boosting prospects of bigger harvests and increased exports.

Increased supply of rice, corn, sugar and oilseeds ease India’s food-price inflation, the highest among the biggest emerging markets, and cap global food costs monitored by the United Nations that climbed 26 percent in the past year.

Overseas investors bought a net 2.52 billion rupees ($51.5 million) of Indian stocks on Sept. 28, reducing the outflow from equities this year to 2.92 billion rupees, according to data on the website of the Securities and Exchange Board of India. They withdrew a net $2.4 billion in August, the most since October 2008.

--Editors: Matthew Oakley, Shiyin Chen

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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