Indian stocks declined for the first time in three days as prospects for global stimulus dimmed and investor concern that the recent rally may have outpaced the outlook for earnings growth resurfaced.
HDFC Bank and Kotak Mahindra Bank slid from records as bad loans at the country’s private lenders increased in the June quarter. Axis Bank was the worst performer on the benchmark gauge. ITC, the largest tobacco company, swung between gains and losses before its earnings. Power Grid Corp tumbled from an all-time high.
The S&P BSE Sensex lost 0.7% at the close. Foreign funds have bought a net $919mn of local stocks since July 1, set for the biggest inflow since March, amid signs of an improving economy. While India is among emerging-markets to have benefited from prospects for an additional stimulus following Britain’s vote in June to exit the European Union, the purchases have sent the Sensex’s valuation to a 16-month high. That leaves the gauge with little upside if companies report earnings that miss estimates.
“The markets will not be able to sustain these levels without earnings support,” RK Gupta, managing director of Taurus Asset Management Co, which oversees $590mn, said from New Delhi. “The earnings season so far has been a mixed bag. Foreign inflows will sustain only if our economic growth and corporate earnings remain high.” Four of the six Sensex companies that have reported June-quarter results so far have disappointed investors. Indian stocks entered a bull market last week, helped by above-normal rain after back-to-back droughts and a recovery in company earnings. Operating profits for companies in the NSE Nifty 50 Index rose about 10% in the three months ended March, the most since September 2014, reversing declines in four of the previous five periods, data compiled by Bloomberg show.
HDFC Bank decreased 0.3% after touching a record earlier. First-quarter profit rose 20% to Rs32.4bn compared with Rs32.8bn estimated by analysts. Gross bad loans were 1.04% at the end of the June quarter versus 0.94% in the three months ended March. Provisioning for bad loans climbed to Rs8.67bn from Rs7.28bn a year earlier, the lender said.
Kotak Mahindra Bank slid 2.8%, the most since February 11. It posted first-quarter net income of Rs7.42bn compared with an estimate of Rs7.48bn. Gross bad loans were 2.5% up from 2.36% at the end of March.
Axis Bank tumbled 3.6%, while State Bank of India lost 2.4%. ICICI Bank retreated 2.1%.
ITC closed little changed after swinging 1.5% on both sides. Power Grid retreated 3.5% after reaching a record on Wednesday.
The Sensex trades at 16.2 times projected 12-month profits, 15% higher than its five-year average, data compiled by Bloomberg show.
Meanwhile, the rupee yesterday recovered from early losses against the US dollar and ended marginally higher by 3 paise at 67.17.