India’s Sensex falls to 1-week low as Reliance, auto stocks drop

Bloomberg/Mumbai

Indian stocks dropped, with the benchmark index falling to a one-week low, led by shares of automakers and metal producers.

The S&P BSE Sensex lost 0.8% to 19,294.12 at the close in Mumbai, with volume 21% less than the 30-day average. Reliance Industries, owner of the world’s largest refining complex, decreased the most in a week, the biggest drag on the index. Mahindra & Mahindra and Bajaj Auto declined at least 1.9% each. Tata Steel retreated to a four-year low after CLSA Asia-Pacific Markets reduced its recommendation on the stock.

Profits at the 30 Sensex companies may rise 5.8% in the three months ended June after two quarters of “near-zero” growth, Bank of America Corp said in a July 3 report. Still, there could be a “risk of disappointment in earnings” because of a weak rupee, the report said. Software maker Infosys will be the first Sensex member to report on July 12. Data for consumer inflation and factory output are due the same day.

“All eyes are on the earnings season and the important data points due in the next few days,” Kaushik Dani, a fund manager at Peerless Mutual Fund, which has about $751mn in assets, said by telephone from Mumbai. “The earnings season doesn’t look very promising, overall. Investors will focus on individual results.”

Infosys gained 0.1% to Rs2,501.15. Net income may rise 1.3% to Rs23.2bn ($386mn) in the quarter ended June, according to a median of 33 estimates in a Bloomberg survey. Tata Consultancy Services climbed 0.5% to Rs1,511.95, ending three days of losses.

Reliance fell 2.2% to Rs856, the most since July 3. Mahindra lost 2.7% to Rs912.55, the fourth day of losses. Bajaj Auto slid 1.9% to Rs1,862.4 and Tata Motors, owner of Jaguar Land Rover, retreated 1.8% to Rs284.05.

Tata Steel tumbled 2.1% to Rs256.2. CLSA cut its recommendation to sell from underperform and slashed its price target 31% to Rs215. A weak rupee will widen losses at the Corus unit and increase foreign-currency debt in local currency terms, analysts Abhijeet Naik and Nitij Mangal wrote in a report dated on Tuesday. Aluminum producer Hindalco Industries lost 2.6% to Rs98.2.

The Sensex has dropped 3.8% since May 22 when Fed Chairman Ben Bernanke said the central bank will slow stimulus if the US jobs market improves. Foreign funds pulled $1.76bn from Indian equities in June, the highest since August 2011, data from the regulator show.

The Sensex trades at 13 times projected 12-month earnings, compared with the MSCI Emerging Markets Index’s 9.6 times. The CNX Nifty Index on the National Stock Exchange of India dropped 0.7% to 5,816.70.

The rupee, meanwhile, added 0.8% to 59.6550 per dollar at the close in Mumbai, gaining for the second day, boosted by steps taken by the regulators on July 8 after the currency slid to a record 61.2125. A weaker rupee stokes inflation by raising the cost of India’s imported oil, paring the central bank’s ability to cut interest rates when it reviews policy on July 30.

The currency touched an all-time low of 61.2125 on July 8. Global funds were net buyers of rupee debt for the first time in 14 days on July 8, exchange data show. They have cut holdings of local bonds by $8.1bn since May 22, when the US Federal Reserve first signaled it may pare stimulus that has driven flows to emerging-market assets.

“A steady currency would definitely provide comfort to bond markets, but it’s too early to say the rupee has stabilised,” said Lakshmi Iyer, head of fixed income at Kotak Mahindra Asset Management Co in Mumbai. “Data showing foreign funds were net buyers of debt is also positive.”

Indian bonds due 2022 advanced for a second day as the rupee’s advance from a record low tempered concern inflation will quicken.

The yield on the 8.15% notes due June 2022 fell two basis points, or 0.02 percentage point, to 7.66% in Mumbai, according to the central bank’s trading system. The rate climbed 18 basis points last month, the most since the securities were issued in June 2012.

A sustained 10% drop in the rupee adds 150 basis points to 200 basis points to wholesale-price inflation, according to a Standard Chartered research note last month. Wholesale prices, which are more frequently used for policy decisions, rose 4.7% in May from a year earlier, the least since 2009, official data show. Reserve Bank of India Governor Duvvuri Subbarao left the repurchase rate unchanged at 7.25% on June 17, citing inflation risks.

The rupee weakened 4.9% last month, the most since May 2012. Global funds’ holdings of Indian bonds were at an all- time high on May 21, a day before Fed Chairman Ben S Bernanke indicated the central bank’s asset-buying program could be tapered if the US job market continues to improve.

The RBI barred banks from proprietary trading in currency futures and exchange-traded options, while the Securities and Exchange Board of India said it will raise margin requirements and curtail open positions.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell six basis points to 7.49%, data compiled by Bloomberg show.