Sensex, Nifty fall as Infosys tumbles after paring sales guidance

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Indian stocks declined for the first time this week as the quarterly results of the nation’s second-biggest software exporter disappointed investors.

Infosys Ltd tumbled the most since April 2013 after paring its annual sales outlook. Tata Consultancy Services Ltd (TCS), Asia’s largest technology exporter, decreased the most in five months. Coal India Ltd, the world’s largest miner of the fuel, and power generator NTPC Ltd both fell for a second day this week. Reliance Industries Ltd (RIL), owner of the world’s largest refining complex, rose before its earnings report due after market hours.

The S&P BSE Sensex decreased 0.38%, or 105.61 points, to 27,836.50 at the close, paring the weekly advance to 2.6%.

Nifty 50 closes 0.28%, or 23.60 points, lower at 8,541.40.

Investor are focusing on the June-quarter results season, which got underway on Thursday, for signs that the rally that pushed up the gauge’s valuation to near a five-year high this week are supported by company earnings.

“Company earnings will be looked at with a magnifying glass as the belief that there’s a recovery has been high after the last quarter,” Sadanand Shetty, a senior fund manager at Taurus Asset Management Co., which has $476 million, said by phone from Mumbai. “Management guidance is very important and if there’s a massive disappointment the stock will get punished.”

The Sensex entered a bull market on Monday, rebounding 21% from a low reached in February, helped by forecasts for 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% 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.

Sales outlook

Infosys tumbled 8.81% to its lowest level since 12 January after the company predicted 10.8% to 12.3% growth in US dollar terms in the year to March, down from a previous range of 11.8% to 13.8%. The company also reported first-quarter sales that lagged estimates.

TCS, which kicked off the reporting season Thursday, fell 3%, ending a four-day advance. Net income increased to Rs.6,320 crore in the three months ended June, the Mumbai-based company said after trading ended. The results beat the Rs.6,060 crore mean of estimates compiled by Bloomberg. The company does not provide a sales guidance. Wipro Ltd, the third biggest, slid 2.81%.

The Sensex 14-day relative strength index was at 72 on Thursday, above the 70 level that some investors see as a signal to sell.

“Ultimately everything boils down to one thing: earnings growth,” Paras Bothra, vice president of equity research at Ashika Stock Broking Ltd, said by phone from Mumbai. “If economic growth doesn’t culminate into company profits, the market will start looking bloated and expensive. Our is to be stock-specific, based on their earnings performance.”

Coal India retreated 1.48%, the most since 7 July. NTPC decreased 1.2%, the most since 5 July. RIL rose 0.6% to its highest level since 27 April.

LIC Housing Finance Ltd surged 3.7% to a record after the company’s first-quarter profit rose 6.7% to Rs.3,360 crore. Net interest margin widen to 2.61% compared with 2.41% in the same period a year earlier.

The Sensex has risen 6.6% this year. Overseas funds bought $48 million of local shares on 13 July, taking this year’s net inflows to $3.2 billion.