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Sensex drops on lower earnings

Bloomberg  |  Mumbai 

The country’s benchmark stock index fell for a seventh time in eight days as earnings of some of the biggest companies missed forecasts, and as Citigroup Inc lowered its estimate for the benchmark index.

Tata Power Co, the nation’s largest non-state electricity utility, sank 4.4 per cent after its first-quarter profit missed estimates. Maruti Suzuki India Ltd, maker of almost half the cars sold in India, fell 2.5 per cent. Tata Motors Ltd, the biggest truck maker and owner of Jaguar Land Rover, pared a rally of as much as 3.2 per cent after earnings fell short of estimates.

“Risk aversion is back,” of Envision Capital Ltd Managing Director Nilesh Shah said in an interview to Bloomberg UTV. “The concerns were always there; they have resurfaced. On a day-to-day basis, market get driven by what global investors want to do in the short term.”

The Bombay Stock Exchange Sensitive Index, or Sensex, lost 71.11, or 0.4 per cent, to 17,059.4, at close in Mumbai. The gauge swung between gains and losses at least 12 times. The S&P CNX Nifty Index slid 0.4 per cent to 5,138.3. Its August futures settled at 5,128. The BSE 200 Index decreased 0.4 per cent.

Citigroup cut its December target for the Sensex to 19,700 from 21,500, citing a “weak market environment,” lower earnings and “heightened uncertainty.” The MSCI Asia Pacific Index dropped 0.9 per cent on Thursday after the Dow Jones Industrial Average fell to the lowest level since September amid concern Europe’s debt crisis is spreading.

“There could be some further pressures ahead” on earnings, Aditya Narain and Jitender Tokas, analysts at Citigroup, wrote in a report dated on Thursday. Still, “if you remain worried with the developed world, India isn’t a bad place to be” due to lower than average valuations, and easing concerns over inflation and monetary tightening.

Earnings for the three months ended June reported by 11 out of 24 Sensex companies, or 46 per cent, have lagged behind analyst estimates, according to Bloomberg data. That compares with 33 percent that missed forecasts in the previous quarter.

Tata Power plunged 4.4 per cent to Rs 1,123, its sixth day of decline. The company said yesterday first-quarter net income increased 34 percent to Rs 4.18 lakh crore. That missed the median analyst estimate of Rs 5.29 lakh crore.

Maruti Suzuki fell 2.3 per cent to Rs 1,247.6. Bharti Airtel, the country’s biggest wireless operator, fell 2.4 per cent to Rs 397.1.

Tata Motors pared gains to close 0.6 per cent higher at Rs 849 after reporting first-quarter profit that missed analysts’ estimates as sales of its passenger cars in India fell and Jaguar deliveries declined.

Net income rose to Rs 20 lakh crore ($441 million) in the three months ended June 30, from Rs 19.9 lakh crore a year earlier, according to a statement from the Mumbai-based auto maker on Thursday. This lagged behind the median of Rs 21.6 lakh crore of 32 analysts’ estimates compiled by Bloomberg.

The Sensex has declined 17 per cent this year on concern borrowing costs will erode earnings. The gauge trades at 14.1 times estimated profit, the lowest level since May 2009, and down from 21.5 times last March.

“India as a long-term destination continues to be attractive and with a bad sentiment in the backgroup, it becomes even more investment worthy,” Envision’s Shah said.

Citigroup cut its estimate for profit growth at Sensex companies in the year ending March 31, 2012, to 21.5 per cent from 24 per cent, the analysts wrote in an August 1 report.

India’s food inflation accelerated to a three-month high, maintaining pressure on the central bank to increase interest rates amid the risk of a global downturn. An index measuring wholesale prices of farm products including rice, wheat and lentils advanced 9.9 per cent in the week ended July 30, the trade ministry said in an e-mailed statement on Thursday. That’s the most since the week ended April 23.

The inflation rate is ’’far above the threshold level’’ and policy makers need to slow economic growth to curb price gains, central bank Governor Duvvuri Subbarao said August 4.

Foreign investors were net sellers of Indian equities in January, February and May as higher borrowing costs weighed on company earnings and the government curbed its decision making amid corruption scandals.

They sold a net Rs 19.6 lakh crore on August 9, paring their investment in stocks this year to Rs 45.3 lakh crore, according to data on the website of the market regulator.

First Published: Fri, August 12 2011. 00:03 IST