Indian Stocks Retreat After Biggest Weekly Rally in 2 1/2 Years

Indian stocks fell on speculation the biggest weekly gain in shares in more than two years was excessive as inflation and high interest rates continue to threaten corporate profits.

Tata Steel Ltd. (TATA), the nation’s largest producer, lost 2.2 percent after jumping 12 percent last week. ITC Ltd. (ITC), the biggest cigarette maker, fell for the first time in six days.

The BSE India Sensitive Index (SENSEX), or Sensex, dropped 0.2 percent, to 16,821.82, according to preliminary closing prices at the 3:30 p.m. in Mumbai. The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India Ltd. lost 0.2 percent to 5,039.15. The BSE 200 Index (BSE200) fell 0.1 percent. The markets are closed tomorrow for a public holiday.

“The strong momentum we saw was symptomatic of a relief rally and I doubt whether there is underlying strength for the market to follow this through,” Vineet Bhatnagar, managing director of MF Global Sify Securities India Pvt., said in an interview with Bloomberg UTV today. “The market will find it difficult to break 5,100” level on the Nifty index, he said.

The Sensex had its steepest weekly rally since July 2009 last week on expectation the nation’s central bank may pause its record series of interest-rate increases after the economy grew at the slowest pace in two years. The measure has still sunk 18 percent this year as a weakening rupee, accelerating inflation, record borrowing costs and Europe’s debt crisis erode profits, prompting foreign funds to cut equity holdings by $2.6 billion from a record in July. The slide has narrowed the valuation of the companies on the gauge to 14.5 times future profits, near the lowest level since May 2009. The MSCI Emerging Markets Index (MXEF) is valued at 10.3 times.

Overseas investors bought a net 9.05 billion rupees ($176 million) of Indian stocks on Dec. 1, paring their withdrawals from equities this year to 17.7 billion rupees, according to data from the Securities & Exchange Board of India.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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