Mumbai: Indian stocks dropped the most in three weeks amid concerns corporate earnings may disappoint and as lower-than-average monsoon rains threaten the nation’s efforts to tame inflation and spur economic growth.
Tata Power Co. Ltd, the nation’s largest non-state electricity producer, slumped 1.98% as Standard and Poor’s (S&P) cut its outlook on the firm to negative from stable. Motorcycle maker Hero MotoCorp Ltd retreated 2.62%. Chambal Fertilizers and Chemicals Ltd sank 4.71%, pacing losses among peers.
The BSE India Sensitive Index, or Sensex, lost 0.74% to 17,391.98 at the 3.30pm close in Mumbai, its biggest drop since 18 June. The June-September monsoon rains, which account for more than 70% of annual rainfall, are 25% below a 50-year average, the weather bureau said on Monday. Stocks also fell as data on 6 July showed American employers hired fewer workers than forecast last month, a sign the US labour market is making scant progress towards reducing joblessness.
“We are getting more concerned about the growth environment,” Prabhat Awasthi, head of India equity research at Nomura Holdings Inc, said in a Bloomberg UTV interview on Monday. “Global growth issues have become larger and these additional pressures make one wary not just about India’s economic growth but also about earnings growth.”
Profits at the 30 Sensex companies may drop 14%, the most in three years, to Rs1,278 per share in the year to March, estimates compiled by Bloomberg show. Earnings for 30% of the companies in the index missed estimates in the March quarter, compared with 47% in the period ended December, the data show.
The MSCI Asia Pacific Index sank 1.5%, the most since 4 June. China’s Premier Wen Jiabao said the nation’s economy faces relatively large downward pressure, while data in Tokyo showed Japanese machinery orders fell the most in more than a decade.
“India must curb inflation to ensure sustained economic growth,” the Reserve Bank of India governor Duvvuri Subbarao said after markets closed on 6 July. “Rising prices can’t be tackled without sacrificing short-term growth,” he said.
“Inflation will drop to less than 7% by September after staying elevated for the next few months,” Kaushik Basu, chief economic adviser in the ministry of finance, said in Kolkata on 7 July. Wholesale prices rose a faster-than-estimated 7.55% in May, after gaining 7.23% in April.
Prime Minister Manmohan Singh is counting on growth in farm output, which accounts for about 15% of India’s gross domestic product, to curb inflation.
Chambal Fertilizers sank 4.71% to Rs76.85, the most since 22 March. Rashtriya Chemicals and Fertilizers Ltd lost 3.72% to Rs59.45, while National Fertilizers Ltd. retreated 2.32% to Rs84.05.
Tata Power slumped 1.98% to Rs101.40, the steepest decline since 14 June. Cash flows and the financial-risk profile of the company are likely to deteriorate due to potential project delays, S&P said in a statement on Monday.
Hero MotoCorp lost 2.62% to Rs2,030, the lowest close since 19 June, and rival Bajaj Auto Ltd declined 2.30% to Rs1,504.15. Housing Development Finance Corp., India’s largest mortgage lender, fell 1.20% to Rs675.45, snapping an eight-day winning streak. Tata Steel Ltd slid 2.32% to Rs437.05. Bloomberg
Rajhkumar K Shaaw in Mumbai and Luzi Ann Javier in Singapore contributed to the story.