Indian stocks dropped for the ninth day, the longest run of losses in a decade, on concerns that rising borrowing costs will pressure company earnings.
Bharti Airtel Ltd, the nation’s largest mobile phone operator, fell the most in three months. Profit in the quarter ended in March was Rs 1,400 crore, compared with Rs 2,040 crore a year earlier. That lagged behind the Rs 1,630 crore average of 10 analysts’ estimates compiled by Bloomberg.
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The central bank on 3 May increased the benchmark repurchase rate by half a percentage point to 7.25%, the most since July 2008, and governor D. Subbarao predicted inflation will stay elevated until September. ICICI Bank Ltd, the second biggest lender, paced a decline among peers.
The policy stance of controlling inflation at the cost of growth, though appropriate in longer term, may impact earnings and performance of corporates in the shorter term, Vaibhav Sanghavi, a fund manager at Ambit Capital Pvt. Ltd, said by phone.
The Bombay Stock Exchange (BSE) sensitive index, or Sensex, declined 258.78 points, or 1.4%, to 18,210.58. The gauge has fallen 7.1% over nine days, the longest run of losses since September 2001, and is the second worst performer among the world’s major indexes in dollar terms, Bloomberg data show. The S&P CNX Nifty Index on the National Stock Exchange (NSE) dropped 1.4% to 5,459.85 and its May futures settled at 5,447.75. The BSE-200 Index fell 1.4% to 2,249.40.
The Sensex swung between gains and losses at least 12 times until 1pm before falling as much as 1.7%.
The nature of the sudden decline would suggest that there was some basket selling, said Sanghavi.
Reliance Communications Ltd, India’s second largest cell- phone operator controlled by Anil Ambani, sank 5.52% to Rs 89.05, extending the year-to-date drop to 39%. India’s Central Bureau of Investigation (CBI) is probing the roles of Ratan Tata, chairman of the Tata Group, and Ambani in the case related to the 2008 sale of phone licences, K.K. Venugopal, counsel to the CBI, told the Supreme Court on Thursday.
Tata Teleservices Maharashtra Ltd dropped 4.6% to Rs 16.5. Bharti fell 3.25% to Rs 357.60, the most since 27 January. The company controlled by Sunil Mittal more than doubled sales and advertising spending after starting third-generation phone services and number portability intensified competition.
Earnings growth in India for the quarter ended March have trailed year-earlier levels or missed analysts’ estimates for 10 of the 13 Sensex firms that have reported results so far, Bloomberg data show.
Companies have reported good revenue growth, but rising operating costs are putting pressure on margins, said Ravi Gopalakrishnan, chief investment officer for equities in Mumbai at Pramerica Asset Managers Pvt. Ltd. There’s a lag effect of rising rates and its impact on the economy. Pramerica, a unit of Prudential Financial Inc., has $784 billion in assets.
ICICI Bank slid 2.82% to Rs 1,028.30 and HDFC Bank Ltd, the third biggest lender, lost 2.14% to Rs 2,212.30 on speculation that the central bank may ask banks to boost loans to farmers and small- and medium-sized companies, a move that may pare lenders’ profit margins.
Subbarao said on 3 May that he will review the definition of the priority sector, which comprises agriculture and small scale industries. Banks must lend 40% of net credit to the segment under present rules.
The Sensex has declined 11% this year on concerns that faster inflation will cause borrowing costs to rise, crimping growth in corporate earnings. Sensex stocks trade at an average 14.5 times estimated profit, down from 21.5 times in March 2010. The MSCI Emerging Markets Index is valued at 11.3 times.
Reliance Industries Ltd, the nation’s largest company by market value, climbed 0.26% to Rs 949.50. The stock has fallen 6.8% in the past 12 months before Thursday, compared with a 6.2% gain in the Sensex.
Overseas investors sold a net Rs 1,250 crore of Indian stocks on 3 May, paring their investments in equities this year to Rs 3,280 crore, according to data on the website of the Securities and Exchange Board of India. Bloomberg
Santanu Chakraborty in Mumbai and Rakteem Katakey in New Delhi contributed to this story.