Bloomberg News

India’s Sensex Ends Two-Day Rally on Europe, Earnings Concern

October 11, 2011

Oct. 11 (Bloomberg) -- Indian stocks dropped for the first time in three days on concern Europe’s debt crisis may worsen, and as investors turned cautious before the start of the local earnings season and factory output data tomorrow.

Infosys Ltd., the second-largest software exporter, paced losses among peers after the European Central Bank President Jean-Claude Trichet said the region’s debt crisis has reached a “systemic dimension.” India’s biggest software makers earn about three-quarters of their revenue from overseas. Infosys will announce results tomorrow, the first company in the S&P CNX Nifty Index to post earnings for the September quarter. Copper maker Sterlite Industries (India) Ltd. slid 1.5 percent.

The BSE India Sensitive Index fell 20.76, or 0.1 percent, to 16,536.47 at the 3:30 p.m. close in Mumbai. S&P CNX Nifty Index on the National Stock Exchange of India Ltd. dropped 0.1 percent to 4,974.35. Its October futures settled at 4,980.10. The BSE-200 Index gained 0.1 percent to 2,033.26.

“Investors don’t want to keep their positions open ahead of the earnings season and the factory output data tomorrow,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd., said by phone from Kochi. “The European debt crisis concern is also playing on their minds.”

Infosys, the second-biggest stock on the Sensex, lost 3.3 percent to 2,504.55 rupees, ending a three-day, 6.2 percent advance. The company may report profit of 18.8 billion rupees ($384 million), up from 17.4 billion a year earlier, according to the median estimate of 28 analysts compiled by Bloomberg.

Options traders are the most bearish on Infosys in seven months on speculation the company may cut its earnings forecast amid the global market turmoil. The ratio of outstanding puts to sell the shares versus calls to buy reached 0.86 yesterday, the highest since March, data compiled by Bloomberg show.

Europe and North America contributed almost 87 percent to Infosys’s sales in the year ended March 31.

‘Bearish Outlook’

“When the U.S. and Europe are not doing that great, some cut in earnings forecast is likely,” Jagannadham Thunuguntla, chief strategist at SMC Wealth Management Services Ltd., told Bloomberg Television. “They will probably give an indication of a bearish outlook with clients cutting their information technology spending.”

Larger rival Tata Consultancy Services Ltd. decreased 2.2 percent to 1,040.85 rupees. Wipro Ltd., the third-biggest, slid 2.1 percent to 341.7 rupees.

Investors are also focusing on August industrial output numbers due tomorrow and inflation for September scheduled for Oct. 14, data that may help the central bank decide whether to raise interest rates further at its policy review on Oct. 25.

Output at factories, utilities and mines will increase 4.7 percent from a year earlier, according to a Bloomberg survey of 17 economists. Production grew 3.3 percent in July, the slowest pace in almost two years.

Borrowing Costs

The central bank may boost rates even after the nation’s lenders urged a pause at a meeting with bank Governor Duvvuri Subbarao last week, HDFC Bank Ltd. Managing Director Aditya Puri said in an interview on Oct. 7. The Reserve Bank of India, which has raised rates by 350 basis points since March 2010, may increase borrowing costs by another quarter percentage point this month, he said.

Inflation is above the level deemed acceptable, Subbarao said Sept. 26, signaling pressure remains for tightening in Asia’s third-largest economy. Lenders’ bad debts are likely to climb as growth slows, Puri said.

Sterlite fell 1.5 percent to 115.8 rupees. Bharat Heavy Electricals Ltd., the biggest power-equipment maker, declined 1.7 percent to 326.75 rupees. Lender ICICI Bank Ltd. retreated 1.2 percent to 832.5 rupees.

Telecom Spectrum

Bharti Airtel Ltd. gained 3.2 percent to 375 rupees after the government said it planned to make more spectrum available to operators and allow sharing and trading of airwaves. Idea Cellular Ltd. rallied 3.5 percent to 95.35 rupees. Airwaves held by some government departments may be freed up, telecom minister Kapil Sibal said in New Delhi yesterday.

The Sensex has declined 19.4 percent this year on concern record rate increases may compound the effects of the European crisis and slowing U.S. growth on corporate profits. Earnings for 47 percent of Sensex companies missed analyst estimates in the June quarter, up from 33 percent in the previous quarter, data compiled by Bloomberg show. Companies in the Sensex trade at 14 times estimated profits, down from 21.5 times in March 2010. The MSCI Emerging Markets Index is valued at 9.5 times.

Overseas funds bought a net 4.91 billion rupees ($100 million) of Indian equities on Oct. 7, paring the outflow to 28.3 billion rupees, according to data on the website of the Securities & Exchange Board of India. They withdrew a net $2.4 billion in August, the most since October 2008.

--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: Shiyin Chen at schen37@bloomberg.net


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