Stocks drop for 2nd day on earnings concern

Indian stocks slid for a second session, led by power utilities and developers, amid concern the rally fueled by capital inflows has exceeded the outlook for earnings growth. The benchmark gauges struggled to hold on to their intraday gains after European stocks opened lower and investors exited recent outperformers.

The S&P BSE India Power Index fell after rising four per cent in as many sessions, while a gauge of real-estate companies ended a four-day, nine per cent climb. Energy shares bucked the trend following a pick up in oil prices.

"We will continue to see sector rotation and gyrations until company earnings revive meaningfully," Abhimanyu Sofat, vice president at brokerage India Infoline, said by phone from Mumbai. Some traders also closed positions ahead of the weekend and public holidays on Tuesday and Wednesday, he said.

Indian equities on Friday capped a second straight quarter of gains and the rupee completed a third monthly climb as the nation's world-beating growth lured investors. Overseas funds have bought $7.7 billion of shares this year, data compiled by Bloomberg show. That's more than double the $3.3 billion they invested in all of 2015. Local mutual funds have purchased $2.2 billion of shares since January 1, extending last year's record inflow of $10.2 billion.

The inflows have fueled the Sensex's 22 per cent rebound from a low reached in February. The index trades at 15.8 times projected 12-month earnings, down from a multiple of 16.7 times last month, which was the most expensive since January 2011.

Still, operating profit for 30 companies on the gauge rose about four per cent in the June quarter, compared with an eight per cent increase in the previous three months, data compiled by Bloomberg show. Crude halted gains below $50 a barrel after advancing 2.3 per cent Wednesday to the highest close in more than three months.

"Oil marketing companies have moved up because of healthy refining margins, and things will remain good for them until oil prices move up to $60 a barrel," said Satish Mishra, an analyst at HDFC Securities.

Bloomberg