Sensex Has Biggest Weekly Loss Since 2011 as Indian Banks Drop

By Rajhkumar K Shaaw - Jul 11, 2014

Indian stocks declined for a fourth day, with the benchmark index posting its steepest weekly loss since December 2011, amid concern the rally that drove the market to a record has outpaced the outlook for earnings.
Bharat Heavy Electricals Ltd. (BHEL), the country’s top producer of power equipment, plunged the most in 11 months. State Bank of India had the biggest drop since September. Larsen & Toubro Ltd. (LT), the best performing stock on the benchmark S&P BSE Sensex (SENSEX) this year, lost 4.9 percent. Infosys Ltd. (INFO) led software exporters higher after reporting profit that beat estimates.
The Sensex dropped 1.4 percent to 25,024.35 at the close, taking the weekly loss to 3.6 percent. The gauge’s valuation climbed to 16 times projected 12-month earnings on July 7, the most expensive since April 2011, after the measure climbed to an all-time high. The MSCI Emerging Markets Index trades at a multiple of 11, data compiled by Bloomberg show.
“The rally had gone beyond the valuation comfort zone,” Chokkalingam G., managing director of Equinomics Research and Advisory Pvt., said by phone in Mumbai. “At the end of the day, earnings must support stock prices.”
Bharat Heavy tumbled 8.4 percent, taking this week’s loss to 15 percent, the most on the Sensex. The stock had surged 48 percent this year through last week. Larsen decreased the most in about 11 months, paring this year’s gain to 47 percent.
State Bank lost 4.7 percent, the most since Sept. 23. Bank of Baroda tumbled 5.2 percent, while ICICI Bank (ICICIBC) retreated for a fifth day to its lowest price since May 8. A gauge of lenders decreased 2.7 percent to its lowest level in two months.
The S&P BSE MidCap Index of 238 companies declined to a one-month low, reducing this year’s gain to 32 percent.

Deficit Target

Prime Minister Narendra Modi’s government, two months into power after winning India’s biggest election victory in three decades, outlined plans yesterday to retain the deficit target at the lowest level since 2008 while unveiling tax breaks for power utilities and property investment trusts to spur economic growth from near a decade low.
Finance Minister Arun Jaitley’s speech lacked details on how the reduction in the budget gap will be achieved, Moody’s Investors Service said in a statement yesterday.
“Nothing will change fundamentally in the next three to six months nor will you see substantial improvement in earnings in the next one-to-two quarters,” Prashasta Seth, chief executive officer of India Infoline Asset Management Co., told Bloomberg TV India today.
The Sensex has increased 18 percent this year, the best performance among the world’s 10 biggest markets, as foreigners bought $11 billion of shares on optimism Modi’s landslide win will help him fix India’s $1.8 trillion economy. Gross domestic product expanded 4.7 percent in the year ended March 31, after a decade-low growth of 4.5 percent the previous year.

Underperform

Indian equities may “underperform” in the near term, BNP Paribas SA analysts led by Manishi Raychaudhuri wrote in a note dated today. Indian stocks have trailed Asian equities outside of Japan in 70 percent of “post-budget episodes” in the past seven years, they wrote.
Infosys added 1 percent, ending three days of declines. Net income rose 22 percent to 28.9 billion rupees ($480 million) in quarter ended June, beating the 26.5 billion-rupee median of 33 analysts’ estimates compiled by Bloomberg. Infosys maintained its full-year forecast for sales growth.
Tata Consultancy Services Ltd. (TCS), India’s largest software services exporter, rose 1.8 percent, while Wipro Ltd. (WPRO) gained 1.5 percent.
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net
To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Ravil Shirodkar, Dick Schumacher

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Infosys Profit Beats Estimates on Orders, Cost Cuts By Bianca Vázquez Toness and Suresh Seshadri - Jul 10, 2014

Infosys Ltd. (INFO) posted first-quarter profit that beat analyst estimates as India’s second-largest software services company pared costs and won more orders.
Net income rose to 28.9 billion rupees ($480 million) in the three months ended June from 23.7 billion rupees a year earlier, Bengaluru-based Infosys said in a statement today. That beat the 26.5 billion-rupee median of 33 analysts’ estimates compiled by Bloomberg. The company maintained its full-year forecast for sales growth.
Billionaire N.R. Narayana Murthy, who returned as chairman in June 2013 to help revive growth, boosted margins by cutting costs and is set to hand control of the software exporter he co-founded to Chief Executive Officer designate Vishal Sikka. Infosys won contracts last quarter from companies including Orange SA and Boston-based Eastern Bank.
“Infosys’s renewed focus on traditional service lines and cost initiatives could lead to revenue growth stabilizing,” Abhiram Eleswarapu, a Mumbai-based analyst at BNP Paribas SA, wrote in a June 20 note to clients. Margins would also recover even as the new management takes “time to settle in.”
Infosys kept its April forecast for full-year sales growth in U.S. dollar terms of 7 percent to 9 percent.
Infosys climbed 2.7 percent to 3,380.80 rupees as of 9:21 a.m. in Mumbai trading, while the benchmark S&P BSE Sensex Index fell 0.1 percent. Industry leader Tata Consultancy Services Ltd. gained 1.6 percent.

CEO Succession

First-quarter revenue was 127.7 billion rupees compared with the 128 billion rupee median of analyst estimates.
“We saw positive trends in our large deal wins during the quarter,” U.B. Pravin Rao, chief operating officer, said in the statement. “This momentum will hold us in good stead as we focus on increasing volumes.”
Sikka, 47, who was named last month to succeed S.D. Shibulal, spent 12 years at German business software supplier SAP AG and will be the first non-founder to head Infosys. The India-born California resident, who assumes charge Aug. 1, has his task cut out as Infosys seeks to retain its importance as companies move computing tasks to “cloud” programs, rather than writing the code themselves.
More than a dozen executives have left Infosys since Murthy returned in June 2013 to help revive revenue growth. Murthy stepped down as executive chairman last month and will leave the company on Oct. 10.

Industry Spending

Infosys, which designs and builds software programs, maintains computers and provides IT and outsourcing services for customers including the District of Columbia and Toyota Motor Corp., added 61 clients last quarter.
Worldwide information technology spending growth will slow to 4.1 percent this year, compared with an earlier projection for 4.6 percent, researcher International Data Corp. said May 16.
“IT spending has been volatile since the beginning of the year,” Framingham, Massachusetts-based IDC said in the report. A slowdown in mobile-device sales will also contribute to lower growth, even as cloud computing continues to disrupt traditional IT budgets, according to the report.
The company reported a net addition of 879 employees in the quarter, and its attrition rate accelerated to 19.5 percent, compared with 18.7 percent in the three months ended March.
“Employee attrition rates are worrisome and we are implementing various initiatives to retain good talent,” Rao said.
To contact the reporters on this story: Bianca Vázquez Toness in New Delhi at btoness@bloomberg.net; Suresh Seshadri in Bengaluru at sseshadri1@bloomberg.net
To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Robert Fenner, Subramaniam Sharma

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Dollar Debt Lures Tata, JSW as Rupee Stabilizes: Corporate India

By Anurag Joshi and Abhishek Shanker - Jul 8, 2014

Tata Steel Ltd. (TATA), Essar Oil Ltd. (ESOIL) and JSW Steel Ltd. are among Indian companies racing to cut debt costs as the lowest rupee volatility in three years makes it cheaper to refinance local loans overseas.
Tata Steel, the nation’s biggest maker of the alloy, said last week that it plans to replace some of its more expensive rupee obligations with borrowings abroad. JSW Steel, India’s No. 3 maker, said it is seeking to save as much as 1 percentage point in interest costs by reducing debt denominated in the local currency to 50 percent of total, from 60 percent.
A stable local currency is tempering exchange-rate risk and offering savings as companies want the Reserve Bank of India to cut the highest interest rates among major Asian economies and help revive the $1.8 trillion economy. The narrowest swings in the rupee since June 2011 are reducing hedging costs and boosting the appeal of refinancing, said Alan Greene, a Singapore-based analyst at Moody’s Investors Service.
“This is a favorable time for companies to refinance rupee debt by borrowing dollars overseas as the local currency will continue to be stable and steady in the foreseeable future,” said Prabal Banerjee, Mumbai-based president of international finance at Essar Group, a conglomerate engaged in energy, steel and business process outsourcing.

Hungry Market

Essar Oil, the group’s energy unit, said earlier this year that it is “dollarizing” its rupee debt to reduce interest costs and had plans to convert the equivalent of $1.3 billion of its rupee-denominated debt into dollars. Tata Power Co. (TPWR), the electricity utility unit of India’s largest business group, said last month it plans a $205 million, three-year loan to refinance its maturing debt.
Tata Steel sought an approval from shareholders to increase its borrowing limits and to raise debt from international markets.
“The market is hungry for Indian names at the moment,” Moody’s Greene said in an interview. “If the economy is turning around, they should be making better profits and be able to service their debt.”
Steelmakers to consumer-goods manufacturers in India are expecting policymakers to spur the economy as inflation causes interest rates to stay at the highest among major Asian economies. Gross domestic product rose 4.7 percent in the year to March 31, following a 4.5 percent increase in the previous 12 months. Consumer inflation averaged more than 9.5 percent since the start of 2012.

Volatility Slump

Prime Minister Narendra Modi, who was sworn into office on May 26, has vowed to reverse the slowdown, rein in inflation and take unpopular decisions necessary to mend state finances. He has pledged to build 100 new cities, provide houses to all citizens by 2022, introduce high-speed trains and low-cost airports for smaller towns.
His government will present its first budget on July 10.
The rupee has surged 15 percent from an all-time low of 68.845 a dollar reached in August, making it the best rally in the Asia-Pacific region for the period. One-year implied volatility has slumped 409 basis points this year, the most among Asian currencies, to 9.25 percent, according to data compiled by Bloomberg. The gauge was at 9.12 percent on June 27, the least in three years.
“There was too much volatility in the rupee, which was a cause for concern,” Seshagiri Rao, group chief financial officer for JSW, said last month. “The rupee in the range of 58 to 61 is good and a comfortable level.”

Giving Confidence

Indian companies raised $15.1 billion in foreign-currency loans in the first half, the most in such a period since 2011, as borrowing costs abroad fell even as those at home remained at the region’s highest levels.
“This year has seen large refinancing transactions as companies managed favorable rates and extended debt maturities,” Manmohan Singh, Mumbai-based head for debt capital markets for India and South-East Asia at Royal Bank of Scotland Group Plc. “The rupee’s stability and a new government is giving confidence to investors.”
Average costs on rupee-denominated loans exceeded rates on dollar borrowing by at least 8 percentage points amid monetary easing by the U.S. Federal Reserve and the European Central Bank, according to data compiled by Bloomberg.
The cost to protect against foreign-exchange swings is easing as exchange-rate volatility decreases. The price of contracts that fix the conversion rate for buying dollars with rupees in three months dropped 109 basis points, or 1.09 percentage points, from this year’s high of 9.68 percent.

Trailing Estimates

While the benchmark S&P BSE Sensex index comprising 30 stocks of top Indian companies has rallied 23 percent this year on optimism Modi will take steps to revive demand, the slowdown has dented profits. Some are selling some of their assets, while others are refinancing debt.
Sales at 29 of the 30 Sensex companies in the three months ended March was 1.8 percent below analysts’ estimates, according to data compiled by Bloomberg. Four companies, including Maruti Suzuki India Ltd., reported a drop.
Profit margins or earnings as a percentage of sales before interest, taxes, depreciation, and amortization at Tata Steel’s Indian operations were near a 11-year low at 31.1 percent in the year ended March 31, while JSW Steel (JSTL)’s was 17.9 percent compared with 17.1 percent last year, which was the lowest in at least five years.
Tata Steel and JSW Steel are among producers adding capacity even as the pace of consumption declined for a third consecutive year to less than 1 percent in the year ended March 31 as infrastructure projects stalled and local car sales faltered.
“Balance sheets continue to remain stressed so in that sense whatever refinancing-related things can help them in saving interest costs or elongating pay-back periods will be an overall positive,” said Abhisar Jain, an analyst at Mumbai-based Centrum Broking Pvt.
To contact the reporters on this story: Anurag Joshi in Mumbai at ajoshi53@bloomberg.net; Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Sam Nagarajan, Dick Schumacher

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India 10-Year Bond Yield Near 2-Week Low Before Federal Budget

By Shikhar Balwani - Jul 7, 2014

India’s 10-year bond yield was near a two-week low on optimism the government will unveil steps to improve public finances in this week’s budget.
Finance Minister Arun Jaitley will keep the fiscal deficit target at 4.5 percent of gross domestic product in the July 10 budget, unchanged from what the previous administration estimated in February, according to the median forecast in a Bloomberg News survey. Prime Minister Narendra Modi will seek to borrow about 6 trillion rupees ($100.2 billion) in the year through March 2015, little changed from the interim budget’s goal of 5.97 trillion rupees, the survey showed.
“Markets are anticipating that the overall tone of the budget will focus on fiscal consolidation,” said Harish Agarwal, a fixed-income trader in Mumbai at FirstRand Ltd. “Investors are expectedly in a wait-and-watch mode ahead of the key event.”
The yield on the 8.83 percent notes due November 2023 was at 8.66 percent as of 10:10 a.m. in Mumbai, little changed from July 4 and a two-week low reached on July 2, according to the central bank’s trading system. The rate dropped eight basis points last week after a three-week advance.
The government’s recent decisions to raise fuel prices and rail fares have spurred speculation it will seek to improve finances by boosting revenue and reducing energy subsidies. India can’t afford populist policies and needs fiscal discipline for sustainable economic growth, Jaitley said last week.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose one basis point, or 0.01 percentage point, to 8.35 percent, data compiled by Bloomberg show.
To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Simon Harvey, Andrew Janes

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