Indian Stocks Decline to Four-Week Low Amid Valuation Con

India’s benchmark stock index fell to a four-week low, the worst performer in Asia, amid concern the recent rally has made equity valuations expensive.

The BSE India Sensitive Index, or Sensex, slid 0.7 percent at 18,577.70, the lowest close since Sept. 20. Tata Motors Ltd. (TTMT) retreated 2.6 percent after sales at its Jaguar Land Rover unit dropped in September, the first fall in 14 months, as a slowing global economy cooled demand for luxury vehicles. Reliance Industries Ltd. (RIL), the largest company by value, slid 1.3 percent after profit declined for a fourth straight quarter.

The Sensex has increased 20 percent this year as offshore funds investors added to their holdings of local shares amid a burst of measures aimed at reviving an economy growing at near its slowest pace in three years. The measure is valued at 14.8 times estimated earnings, compared with 11.5 times for the MSCI Emerging Markets Index, data compiled by Bloomberg show.

“Investors are cautious as valuations look stretched,” Kishor Ostwal, managing director of equities research provider CNI Research (India) Ltd., said by telephone from Mumbai. “The market may consolidate around the current level. Investors are watching corporate earnings. If profit growth picks up, there could be a further rally.”

One out of three Sensex companies which reported earnings for the September quarter have missed analyst estimates. The season started Oct. 12 with Infosys Ltd. (INFO), the second-largest software exporter, paring its sales and earnings forecast.

Earnings Scorecard

Net income at Reliance, which operates the world’s largest refining complex, fell 5.7 percent to 53.8 billion rupees in the September quarter, the company said after markets closed yesterday. Profit still matched the median estimate of 53.7 billion rupees in a Bloomberg News survey of 28 analysts. The stock fell 1.3 percent to 812.45 rupees.

Earnings for 40 percent of the 30 Sensex companies missed estimates in the June quarter, compared with 30 percent in the three months ended March and 47 percent three months earlier, according to data compiled by Bloomberg.

Tata Motors slid 2.6 percent to 262.3 rupees after sales at its Jaguar Land Rover unit fell 4.3 percent in September, the first drop in 14 months, as a slowing global economy sapped demand for luxury vehicles. Housing Development Finance Corp. (HDFC), the biggest mortgage lender, rose 0.5 percent to 744.2 rupees.

India’s economic growth will quicken to 6 percent in 2013, after weakening to a decade-low this year, helped by improving global markets and a boost to confidence from the recent policy overhaul, the International Monetary Fund said in a report on Oct. 9. Interest rates should remain unchanged until consumer prices ease, the lender said.

Monetary Policy

Wholesale inflation rose 7.81 percent last month, compared with 7.55 percent in August, government data showed yesterday. India’s central bank has refrained from joining nations such as Brazil and South Korea in extending rate cuts, saying inflation exceeds a comfort level of about 5 percent. At the same time, the country’s finance officials are seeking lower funding costs to back an policy revamp that included a cut in fuel subsidies last month to pare a fiscal deficit.

The Reserve Bank, which last month left borrowing costs unchanged for a third meeting after reducing rates in April, will review monetary policy on Oct. 30.

“India remains one of the very few countries where the rate-cut cycle has only just begun,” Sunil Singhania, head of equities at Reliance Capital Asset Management Ltd., India’s second-biggest mutual fund with $17 billion in assets, told Bloomberg TV India today. “We’ve had 13 rate increases, only one rate cut. It can take two or three years but the fact is that these 13 increases be followed by at least seven to 10 rate cuts. There are challenges and capex cycle will take some time to revive but the building blocks are starting to get in place. We need interest rates to come off.”

Borrowing costs may fall at least 100 basis points in the next 12 months, Singhania said.

The S&P CNX Nifty (NIFTY) Index on the National Stock Exchange of India Ltd. dropped 0.7 percent to 5,648. Its October futures settled at 5,649.75. The BSE-200 Index and BSE Mid-Cap Index each lost 0.7 percent. The National Stock Exchange of India and the BSE traded 756 million shares yesterday, 17 percent lower than the 12-month daily average of 908 million.

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

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

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