Stocks declined for the first time in three days, as prospects for global stimulus dimmed and investor concern that the recent rally might have outpaced the outlook for earnings growth resurfaced.
HDFC Bank and Kotak Mahindra Bank slid from records, as bad loans at the country's private lenders increased in the June quarter. Axis Bank was the worst performer on the benchmark gauge. ITC, the largest tobacco company, swung between gains and losses before its earnings. PowerGrid Corp tumbled from an all-time high.
The S&P BSE Sensex lost 0.7 per cent at the close. Foreign funds have bought a net $919 million of local stocks since July 1, set for the biggest inflow since March, amid signs of an improving economy. While Indian is among emerging-markets to have benefited from prospects for an additional stimulus following Britain's vote in June to exit the European Union, the purchases have sent the Sensex's valuation to a 16-month high. That leaves the gauge with little upside if companies report earnings that miss estimates.
"The markets will not be able to sustain these levels without earnings support," R K Gupta, managing director of Taurus Asset Management Co, which oversees $590 million, said from New Delhi. "The earnings season so far has been a mixed bag. Foreign inflows will sustain only if our economic growth and corporate earnings (profits) remain high."
Earnings scorecard
Four of the six Sensex companies that have reported June-quarter results so far have disappointed investors. Indian stocks entered a bull market last week, helped by 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.
European stocks fell after Bank of Japan Governor Haruhiko
Kuroda quelled speculation of so-called helicopter money. Kuroda in a BBC Radio 4 program said he sees no need and no possibility of Japan introducing measures that involve the central bank directly funding government spending. His comments precede the European Central Bank's meeting later on Thursday, followed by a press conference by President Mario Draghi.
HDFC Bank decreased 0.3 per cent after touching a record earlier. First-quarter profit rose 20 per cent to Rs 3,240 crore compared with Rs 3,280 crore estimated by analysts. Gross bad loans were 1.04 per cent at the end of the June quarter versus 0.94 per cent in the three months ended March. Provisioning for bad loans climbed to Rs 867 crore from Rs 728 crore a year earlier, the lender said.
Kotak Mahindra Bank slid 2.8 per cent, the most since February 11. It posted first-quarter net income of Rs 742 crore compared with an estimate of Rs 748 crore. Gross bad loans were 2.5 per cent up from 2.36 per cent at the end of March.
Axis Bank tumbled 3.6 per cent, while State Bank of India lost 2.4 per cent. ICICI Bank retreated 2.1 per cent.
ITC closed little changed after swinging 1.5 per cent on both sides. PowerGrid retreated 3.5 per cent after reaching a record on Wednesday.
The Sensex trades at 16.2 times projected 12-month profits, 15 per cent higher than its five-year average, data compiled by Bloomberg show.
Bloomberg
