Ibovespa Drops on Valuation as Two-Week Surge Seen as Excessive

The Ibovespa (IBOV) sank for the first time in four days on speculation a surge that pushed valuations to the highest since January was excessive considering the outlook for slow growth and fast inflation in Brazil.

Oi SA (OIBR4) declined the most on the gauge after people familiar with the matter said Citigroup Inc., Itau Unibanco Holding SA and Banco Bradesco SA are among banks considering dropping out of a plan to underwrite 6 billion reais in new shares as part of the phone company’s capital increase plan. Cia. Energetica de Sao Paulo, the power company known as Cesp, fell after Goldman Sachs Group Inc. lowered it to the equivalent of hold.

The Ibovespa slipped 0.3 percent to 50,270.37 at the close of trading in Sao Paulo, with 46 stocks lower and 26 higher. The index has surged 12 percent after falling into a bear market March 14. It closed yesterday at 50,414.92 with members trading at an average of 9.83 times 12-month earnings estimates, the highest ratio since Jan. 8, according to data compiled by Bloomberg.

“After rising so much in such a short period of time, it’s normal to have some profit taking,” Alvaro Bandeira, a partner at Orama Asset Management, said by phone from Rio de Janeiro. “Nothing really changed in the outlook for the Brazilian economy in the past few weeks to explain an increased optimism about equities.”

Economic growth in Brazil will slow to 1.69 percent this year from 2.28 percent in 2013, according to a central bank survey of about 100 analysts published yesterday. Consumer prices will increase 6.3 percent, faster than the 4.5 percent midpoint of the government’s target range, the survey showed.

City Inflation

Consumer prices in Brazil’s seven biggest cities rose 0.85 percent in the 30 days ended March 31, compared with 0.83 percent in the prior period, the Getulio Vargas Foundation reported today. The median forecast of economists surveyed by Bloomberg was for a 0.82 percent increase.

Cia Hering lost 5 percent to 26 reais, leading declines among retailers. Door-to-door cosmetics seller Natura Cosmeticos SA dropped 3.4 percent to 36.82 reais, the most since March 19.

Oi retreated 7.7 percent to 2.88 reais. Cesp fell 0.9 percent to 26.40 reais.

MMX Mineracao e Metalicos SA, the iron-ore producer controlled by billionaire Eike Batista, jumped 11 percent to 2.84 reais after exchange operator BM&FBovespa SA said it may include the stock in the Ibovespa starting May 5.

The real gained 0.3 percent to 2.2647 per U.S. dollar at 5:33 p.m. local time.

Trading volume of stocks in Sao Paulo was 6.53 billion reais today, according to data compiled by Bloomberg. That compares with a daily average of 6.45 billion reais this year, according to data from the exchange.

To contact the reporters on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Richard Richtmyer

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