Global funds cut holdings, shares fall to 19-month low

Indian stocks extended losses from a 19-month low, tracking declines in Asian equities, as lenders retreated after IndusInd Bank and Federal Bank reported increases in bad loans.

IndusInd tumbled to a two-month low and Federal Bank slid to its lowest price since May 2014. State Bank of India fell for a seventh session, the longest run of losses since February, while Axis Bank was the worst performer on the S&P BSE Sensex. Tata Consultancy Services, the country's top software exporter, decreased to five-week low before it kicks off the quarterly earnings season.

The Sensex slid 0.6 per cent to the lowest close since May 2014. The gauge has retreated 5.5 per cent in January, poised for a third monthly loss, as overseas investors sold riskier assets amid a turmoil in China's stocks and currency. The Sensex has erased nearly all gains recorded after Prime Minister Narendra Modi's party swept to power in May 2014, as euphoria over his economic agenda waned.

"Most foreign investors see China as all of Asia and are pulling out of emerging markets without drilling down to country or company-specific level," Anil Ahuja, chief executive officer of IPEplus Advisors in Singapore, said in an interview with Bloomberg TV India on Tuesday. "Even the local Chinese money is trying to leave China, which means there's going to be a huge demand for the dollar. And that cannot possibly be good for India, except for some exporters."

Overseas investors sold a net $157 million of Indian stocks on January 9, taking outflows this month to $498 million after they bought local equities for four years.

They've pulled $801 million from South Korea, $1.56 billion from Taiwan and $228 million from Thailand, data compiled by Bloomberg show.

IndusInd slid 2.5 per cent to its lowest level since November 18. Gross bad-loan ratio widened to 0.82 per cent in the December quarter from 0.77 per cent at end-September. Bad loan provisions rose to Rs 177 crore from Rs 98 crore a year ago.

Federal Bank plunged 7.7 per cent to its lowest level since May 2014. Gross bad loans rose to 3.15 per cent from 2.9 per cent in end-September. State Bank of India fell 2.4 per cent, while Axis Bank declined 2.7 per cent.

Tata Consultancy will probably report a 10 per cent gain in profit for the December quarter from an year ago, according to the mean of 21 analyst estimates in a Bloomberg survey. The shares slid 1.5 per cent.

Earnings expectations
In the July-to-September period, 57 per cent of Sensex companies reported earnings that matched or beat estimates, compared with 60 per cent in the June quarter, data compiled by Bloomberg show.

"Big expectations of company earnings growing at 20 per cent annually from 16 to 17 per cent are not going to materialise, and if price-earnings contract, then that's another headwind we are going to have to deal with," IPEplus's Ahuja said.

The losses have dragged down the Sensex's 14-day relative-strength index close to the threshold of 30, which to some traders signals a security has fallen too far. The Sensex rebounded 4.5 per cent after the RSI fell to 28.5 on December 9.

Optimism may return if the government announces growth-boosting measures in its federal budget due at the end of February, Ahuja said.

The Sensex trades at 14.8 times its projected 12-month earnings, compared with a multiple of 10.4 for the MSCI Emerging Markets Index.