Employees walk past an electronic board displaying exchange rates (Photographer: Dhiraj Singh/Bloomberg)

Stocks Erase Early Gains as ICICI Bank, L&T Drag Sensex Lower

Indian equity benchmarks closed little changed, but nearly one percent lower from the day’s high, as a sell-off in European equities and tepid start to the first quarter earnings season prompted investors to take some profits off the table.

The S&P BSE Sensex closed 0.1 percent lower at 28,003; while the NSE Nifty ended unchanged at 8,636. Both the indices went up over 0.8 percent intraday before erasing all gains.

The broader market outperformed the benchmark indices. The market breadth was skewed in favour of the bears with 910 declines, 528 advances and 45 stocks remaining unchanged.

India’s valuations, at 19 times one-year forward PE, are stretched said Andrew Holland, CEO at Ambit Investment Advisory in an interview to BloombergQuint, adding liquidity has pushed the markets higher than where they should be at the moment.

If the monsoons are what it seems to be, although it’s getting a little bit patchier, then you may see an upgrade in earnings between 10-15 percent.”
Andrew Holland, CEO, Ambit Investment Advisory

Leading the list of losers – ICICI Bank (down 5.1 percent, most since April 5) and Larsen and Toubro (down 4.1 percent, most since June 24) – after reporting disappointing set of first quarter earnings post market hours on Friday. Together, they dragged the Sensex lower by 137 points.

Sectorally, IT and metal counters gained, while banks and capital goods stocks ended lower.

In a sign of renewed investor interest in non-banking financial companies, Bajaj Finance hit an all-time high. It’s now one of the most expensive financial stocks in India in terms of price-to-book ratio. Other NBFCs like Muthoot Finance, Cholamandalam Investment, Can Fin Homes hit fresh all-time highs.

The stock market debutant Advanced Enzyme Technologies listed at a 35 percent premium to its issue price. This was in line with the strong performances seen in recent IPOs.

RBI Rate Cut on the Cards?

Manufacturing sector in India continued with its uptrend and hit a four-month high in July, backed by stronger upturn in new business orders, while subdued inflationary pressure may prompt RBI to reduce key policy rate, a monthly survey said.

With inflation rates remaining lower than their respective long-run averages, it wouldn’t be surprising to see the RBI loosening monetary policy at its August meeting in an effort to encourage investment.
Pollyanna De Lima, economist at Markit and author of the report said in a press release