Bloomberg News

India’s Sensex Drops Most in a Month on Concern Earnings Slowing

November 15, 2011

Nov. 15 (Bloomberg) -- Indian stocks tumbled the most in a month on concern company earnings are slowing amid accelerating inflation and rising interest rates, and as rebounding Italian bond yields worsened the outlook for the European debt crisis.

Tata Power Co., the nation’s biggest electricity generator outside government control, had the steepest loss in four weeks after posting an unexpected loss. DLF Ltd., the largest realty developer, slid for the fifth day.

The BSE India Sensitive Index, or Sensex, retreated 1.4 percent to 16,882.67 as of the 3:30 p.m. close in Mumbai, the most since Oct. 18. The measure has slumped 18 percent this year on concern record interest-rate increases may combine with the global slowdown to erode corporate earnings. The MSCI Asia Pacific Index dropped 1 percent.

“Companies are experiencing large increases in interest costs and that will continue to hurt their earnings over the next two quarters,” Vetri Subramaniam, head of equities at Religare Asset Management Co. in Mumbai, told Bloomberg UTV today. “The downside risk is no longer coming from margin pressure but from a slowdown in revenue growth, which is driven by slow volume growth.”

Earnings reported by 12 out of 30, or 40 percent, of the companies in the Sensex have trailed estimates in the quarter ended September, compared with 47 percent in the June quarter and 33 percent in March, data compiled by Bloomberg show.

‘Broader Slowdown’

“We are in the midst of a broader slowdown in economic growth,” N. Krishnan, head of India research at CLSA Asia- Pacific Markets, said in an interview in Gurgaon, near New Delhi. “There is still some downside to next year’s earnings as well, even though the cuts have been coming in.”

CLSA reduced in August its 12-month Sensex target to 18,200 from 19,500, citing a “faster slowdown of growth” and increased earnings downgrades. The brokerage has maintained that target, Krishnan said.

While the 50-member S&P CNX Nifty Index on the National Stock Exchange of India lost 1.6 percent to 5,068.5, losses in the broader market were greater. The BSE 200 Index dropped 1.8 percent to its lowest level in a month. The BSE Small-Cap Index slumped 2.8 percent to its lowest close since August 2009.

The 541-member small-cap index trades at 6.8 times future profits, compared with 14.6 times for the Sensex and 10.4 times for the MSCI Emerging Markets Index.

‘High-Beta Counters’

“The continuing downtrend over the past year is taking its toll on mid-and small-caps,” Avinash Gupta, vice president of equity research at Globe Capital Market Ltd., said by phone. “Liquidity is much less in these stocks than in the frontline names. Disappointing earnings, a weak rupee and the European crisis have weakened sentiments in these high-beta counters.”

Tata Power plunged 2.5 percent to 98.8 rupees, the most since Oct. 20, after reporting an unexpected loss as it pared estimated earnings from its biggest plant. It reported a loss of 12.2 billion rupees in the quarter ended Sept. 30, compared with a profit of 6.72 billion rupees a year earlier.

DLF sank 7.2 percent to 207.35 rupees, its biggest slide since Oct. 3, extending this year’s loss to 29 percent. ICICI Bank Ltd., the country’s second-biggest lender, retreated 3.8 percent to 789.85 rupees.

Drugmaker Cipla Ltd. surged 6.5 percent to 306.85 rupees, its biggest advance since May 2009. Its second-quarter profit increased 17 percent to 3.09 billion rupees, beating estimates, boosted by a foreign-exchange gain of 140 million rupees.

Worst Performer

India’s rupee dropped past 50.50 per dollar for the first time in more than 2 1/2 years. The Indian currency has slumped 11.8 percent this year, the worst performer among Asia’s top 10 most-traded currencies. The central bank will intervene in the currency market to smoothen volatility, Deputy Governor Subir Gokarn told reporters today.

“The Indian currency has been relatively weak,” CLSA’s Asia-Pacific Markets equity strategist Christopher Wood said in a Bloomberg UTV interview yesterday. “If we get some negative volatility on the rupee that will raise a question mark on corporates that have access to deep dollar borrowings.”

Kingfisher Airline Ltd. rose 1.9 percent to 21.8 rupees, a second day of gains, after billionaire chairman Vijay Mallya said the carrier aims to raise funds and will continue flying. Mallya held the almost 2 hour-long press briefing to ease concerns about the carrier’s finances following a 16th straight quarterly loss and an 18 percent two-day share plunge last week. An Indian investor has approached him to buy a stake in the airline, he said without disclosing the identity.

Foreign funds, who pulled out $2.4 billion in August, the most since October 2008, have been net buyers for 12 straight sessions, matching the longest streak in four months, according to data compiled by Bloomberg. Flows from overseas reached a record $29.4 billion in 2010.

Overseas funds bought a net 2.16 billion rupees of stocks yesterday, raising total investment in equities this year to 37.4 billion rupees, according to data from the regulator.

--With assistance from Unni Krishnan in New Delhi and Santanu Chakraborty in Mumbai. Editor: Ravil Shirodkar

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at

To contact the editor responsible for this story: Darren Boey at

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