Indian stocks declined, led by industrials and utilities, as the benchmark index retreated from its highest level in three weeks.
Larsen & Toubro Ltd. (LT) and Bharat Heavy Electricals Ltd. (BHEL) tumbled at least 3 percent, sending a measure of engineering companies to a two-week low. NTPC Ltd. (NTPC), India’s largest power generator, slid to a four-month low. ITC Ltd. (ITC), the biggest cigarette maker, fell the most in a month.
The S&P BSE Sensex (SENSEX) decreased 1.2 percent to 20,888.33 at the close, the most since Nov. 21, wiping out an intraday gain of 0.9 percent. The S&P BSE India Capital Goods Index surged 33 percent in the final three months of 2013 amid expectation that profits of machinery and power-equipment makers will improve as economic growth revives from a decade low. The gauge traded at 17.7 times projected 12-month profits, compared with a multiple of 13.4 times for the Sensex, data compiled by Bloomberg show.
“Industrials and utilities are overpriced, and a sell-off is justified,” Anand Tandon, chief executive officer of JRG Securities Ltd. (JRGS), said by telephone in Hyderabad. “There has been no major change in the macro environment or in the interest-rate outlook to support such high valuations.”
Larsen slipped to a one-month low and Bharat Heavy was the biggest loser on the Sensex.
NTPC lost 2.4 percent to the lowest price since Sept. 6. Tata Power Co. (TPWR), the nation’s largest non-state-owned generator, slumped 3.4 percent, the most in three months. The stock surged 15 percent in December. Coal India Ltd. (COAL) retreated 3.1 percent, the most since Nov. 14. ITC, which has the highest weighting in the Sensex, slid 2.3 percent.
The Sensex climbed 9 percent in 2013, the most among the four largest emerging markets, as overseas investors poured a net $20 billion into domestic equities.
Foreign funds bought a net $44.3 million of shares on Dec. 31, capping the largest annual inflow after Japan among 10 Asian markets tracked by Bloomberg. Net purchases in 2012 were $24.6 billion, according to data compiled by Bloomberg.
The Sensex will probably climb to 23,200 in 2014, about 9.6 percent higher than the close on Dec. 31, according to the average of eight analysts’ predictions compiled by Bloomberg. The gauge’s advance last year compares with a 1.9 percent gain in Russia’s Micex Index, a 6.8 percent drop in the Shanghai Composite Index and a 16 percent retreat in Brazil’s Ibovespa.
The Sensex is trading at 13.4 times projected 12-month earnings, compared with the five-year average multiple of 14.3. The MSCI Emerging Markets Index is valued at 10.4 times. The CNX Nifty (NIFTY) Index fell 1.3 percent to 6,221.15.
To contact the reporter on this story: Santanu Chakraborty in Mumbai at firstname.lastname@example.org