Indian (SENSEX) stocks dropped amid concern recent gains may have outpaced the outlook for company earnings and on speculation that an electoral victory of the opposition in Gujarat may prompt the government to slow economic reforms.
The BSE India Sensitive Index, or Sensex, lost 0.4 percent to 19,395.78 at 1:06 p.m. in Mumbai. The gauge has climbed 5.8 percent over the past month, the most since the 30-day period ended Feb. 20, data compiled by Bloomberg show. Copper maker Sterlite Industries (India) Ltd. (STLT) fell from a nine-month high, pacing losses among materials producers.
“Stocks where valuations are looking a bit stretched are seeing profit-booking ahead of the year-end,” Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai, said today.
The Sensex has risen 26 percent this year, headed for its biggest annual advance since 2009, as government steps to open the economy to overseas investment accelerated foreign buying of local stocks. Offshore funds have bought a net $22.8 billion of Indian shares this year, the highest among 10 Asian markets tracked by Bloomberg, excluding China. The gauge trades at 15.3 times estimated earnings, the highest level since February.
Sterlite declined 2.1 percent to 117.35 rupees. The stock yesterday climbed to its highest level since March 14. Tata Steel Ltd. (TATA), the biggest producer, fell 1.8 percent to 416.55 rupees, paring its gain in the past 30 days to 16 percent. Bharat Heavy Electricals Ltd. (BHEL), the biggest power-equipment maker, dropped 1.6 percent to 229.95 rupees. Axis Bank Ltd. slid 1.7 percent to 1,312.5 rupees.
The BSE India Metals Index has jumped 13 percent over the past 30 days, while BSE Bankex Index has risen 10 percent in the same period.
The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. decreased 0.6 percent to 5,895.65. India VIX, which measures the cost of protection against losses in the Nifty, gained 1 percent to 14.61, data compiled by Bloomberg show.
Gujarat Chief Minister Narendra Modi of the Bharatiya Janata Party is heading for a third straight electoral victory. The party is a key opponent of Prime Minister Manmohan Singh’s legislation opening the nation to overseas retailers. BJP’s victory in Gujarat may force the government to boost spending on populist measures before the general elections in 2014.
“Populist measures will spur inflation by widening the fiscal deficit, which is negative for stocks,” Arun Kejriwal, director at Mumbai-based Kejriwal Research & Investment Pvt., said by phone.
Singh’s administration began a campaign in mid-September to revive economic growth from the weakest levels since 2009 and avoid a credit-rating downgrade by paring fuel subsidies, and opening up retailing and aviation to foreign investment. The passing of a banking bill on Dec. 18 was the latest in the series of such measures.
Standard and Poor’s and Fitch Ratings cut their outlooks on India’s credit rating, currently at the lowest investment-grade level, to negative earlier this year. S&P said in a statement on Dec. 11 the country’s large fiscal deficits and debt are constraining ratings.
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