Indian stocks fell for a second day amid concern the rally that sent the benchmark index to a one-year high in early trade isn’t supported by growth in corporate earnings.
ICICI Bank, the nation’s largest private lender by assets, declined to its lowest price in almost a month after reporting a 25% drop in quarterly profit as provisions for bad debt rose.
Larsen & Toubro slid to its lowest price in a month after the biggest engineering company said investment climate still remains tepid. Drugmakers Lupin and Cipla were among worst performers on the S&P BSE Sensex.
The Sensex lost 0.2% at the close.
The gauge had risen as much as 0.8% earlier amid growing optimism about the likely passage of the goods-and-services bill this week and as foreign funds remained net buyers of local shares.
The index on Friday capped its fifth monthly gain, which pushed up its valuations to the highest in 15 months.
“The market could not sustain the higher level as results from ICICI Bank and Larsen & Toubro disappointed investors,” Dhiraj Bhutoria, a director at Varun Tradecom, a Kolkata-based brokerage, said by phone. “Stocks have rallied and earnings are not able to keep pace.”
ICICI Bank tumbled 5.1%, the steepest loss since April 5 and the worst performance on the Sensex.
Larsen & Toubro, which reported a 46% jump in June-quarter profit, said domestic infrastructure orders were delayed in the period as a recovery in investment is yet to gather pace. Both companies posted earnings after trading ended on Friday.
Foreigners have been net buyers of Indian shares every month since March, the quickest pace since November 2014, as above-normal rainfall improves the outlook for economic growth and corporate earnings after back-to-back drought. They bought $300mn of stocks on Thursday, the highest single-day inflow since March 31.
The rally has also been aided by optimism about the GST bill, which has been listed by the government for discussion and passage in the upper house of parliament this week. Investors are waiting to see if the government can overcome the objections of the main opposition Congress party and steer one of India’s biggest reforms into law in the current legislative session.
Meanwhile the rupee yesterday strengthened for the fifth consecutive session to hit over seven-week high against the US dollar after foreign institutional investors (FIIs) continued to buy equities and bonds in the local markets on hopes that the government may pass goods and services tax (GST) bill tomorrow.
The home currency closed at 66.74 a dollar, a level last seen on June 9, up 0.38% from its previous close of 66.99. The rupee opened at 66.77 a dollar and touched a high of 66.70, a level last seen on June 10.
In July, FIIs bought $1.69bn in equities and $1.04bn in debt.
So far this year, the rupee is down 0.88%, while FIIs have bought $4.65bn in equity and sold $887.5mn in debt markets.
India’s 10-year bond yield was at 7.139%, a level last seen on 28 May 2013, as compared with its Friday’s close of 7.167%.
Gains in the Asian currencies markets also supported the rupee. Taiwan dollar was up 1.3%, South Korean won 1.1%, Malaysian ringgit 1.03%, Indonesian rupiah 0.5%, Philippines peso 0.48%, Thai baht 0.08%.
However, China offshore spot was down 0.25%, Japanese yen 0.22%, China renminbi 0.11% and Singapore dollar 0.07%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 95.751, up 0.23% from its previous close of 95.53.
China’s factory gauge from Caixin Media and Markit Economics jumped to 50.6 in July from 48.6 in June, data showed yesterday, while an official measure dropped to 49.9.