Stocks drop as Infosys tumbles after paring sales forecast

Stocks declined for the first time this week as the quarterly results of the nation's second-biggest software exporter disappointed investors.

Infosys tumbled the most since April 2013 after paring its annual sales outlook. Tata Consultancy Services, Asia's largest technology exporter, decreased the most in five months. Coal India, the world's largest miner of the fuel, and power generator NTPC both fell for a second day this week. Reliance Industries, owner of the world's largest refining complex, rose before its earnings report due after market hours.

Sensex 106 points down at 27,836.50; Nifty falls 23.60 points to settle at 8,541.40. Investor are focusing on the June-quarter results season, which got underway on Thursday, for signs that the rally that pushed up the gauge's valuation to near a five-year high this week are supported by company earnings.

"Company earnings will be looked at with a magnifying glass as the belief that there's a recovery has been high after the last quarter," Sadanand Shetty, a senior fund manager at Taurus Asset Management Co, which has $476 million, said by phone from Mumbai. "Management guidance is very important and if there's a massive disappointment the stock will get punished."

The Sensex entered a bull market on Monday, rebounding 21 per cent from a low reached in February, helped by forecasts for 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 per cent 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.

Infosys tumbled 8.8 per cent to its lowest level since Jan. 12 after the company predicted 10.8 per cent to 12.3 per cent growth in dollar terms in the year to March, down from a previous range of 11.8 per cent to 13.8 per cent.

The company also reported first-quarter sales that lagged estimates.

Tata Consultancy, which kicked off the reporting season Thursday, fell three per cent, ending a four-day advance. Net income increased to Rs 6,320 crore ($944 million) in the three months ended June, the Mumbai-based company said after trading ended. The results beat the Rs 6,060 crore mean of estimates compiled by Bloomberg. The company does not provide a sales guidance. Wipro, the third biggest, slid 2.8 per cent.

The Sensex 14-day relative strength index was at 72 on Thursday, above the 70 level that some investors see as a signal to sell.

"Ultimately everything boils down to one thing: earnings growth," Paras Bothra, vice president of equity research at Ashika Stock Broking, said by phone from Mumbai. "If economic growth doesn't culminate into company profits, the market will start looking bloated and expensive. Our is to be stock-specific, based on their earnings performance."

Coal India retreated 1.8 per cent, the most since July 7. NTPC decreased 1.5 per cent, the most since July 5. Reliance Industries rose 0.7 per cent to its highest level since April 27.

LIC Housing Finance surged 3.7 per cent to a record after the company's first-quarter profit rose 6.7 per cent to Rs 3.360 crore. Net interest margin widen to 2.61 per cent compared with 2.41 per cent in the same period a year earlier.