Indian stocks declined the most in three weeks as some investors judged a recent rally that drove the benchmark index to a record is excessive.
Bharat Heavy Electricals Ltd. (BHEL), the power-equipment maker that had rallied 51 percent this month through last week, slid 5.2 percent. Natural-gas supplier GAIL India Ltd. (GAIL) plunged the most since December 2008 after its fourth-quarter net income missed estimates. State Bank of India, the best performer on the S&P BSE Sensex (SENSEX) this year, retreated for a second day.
The Sensex lost 0.7 percent to 24,549.51 at the close in Mumbai. The gauge has risen 9.5 percent in May, poised for the biggest monthly rally since January 2012, after Narendra Modi’s Bharatiya Janata Party won the strongest electoral mandate in 30 years. The rally pushed the index’s 14-day relative strength index to 82 yesterday, above the 70 reading that some investors see as a signal to sell.
“We expect the markets to consolidate now at these levels as investors wait to see campaign promises turned to action,” U.R. Bhat, managing director of the India unit of U.K.-based Dalton Strategic Partnership LLP, said by telephone from Mumbai today. “Good things were going on for too long.”
Modi, who was sworn in as prime minister yesterday, pared the cabinet to the smallest size in 16 years in what he called an “unprecedented” overhaul of India’s top decision-making body. Arun Jaitley, named both finance and defense minister, said today his priorities include restoring economic growth, curbing inflation and improving public finances.
The Sensex has risen 24 percent since Sept. 13, when the BJP named Modi as its candidate. Data showed yesterday that current-account deficit narrowed to a fresh four-year low as higher tariffs cut gold imports, giving the new government more room to boost growth. Morgan Stanley predicts India’s economy will grow 6.5 percent in the year through March 2016, up from a near decade-low of about 4.9 percent last fiscal year.
Bharat Heavy has retreated 9.7 percent in two days, its steepest drop in such a period since Aug. 19. GAIL India slid 7.5 percent today, the most on the Sensex, extending its three-day loss to 11 percent. Oil & Natural Gas Corp. (ONGC) fell 2.5 percent and Reliance Industries Ltd. (RIL), the owner of the world’s largest oil-refining complex, lost 1.3 percent.
The S&P BSE India Power Index fell 2.1 percent, trimming this month’s gains to 29 percent.
Tata Motors Ltd. (TTMT), owner of Jaguar Land Rover, fell 1.7 percent. Mahindra & Mahindra Ltd. (MM), India’s largest maker of sport-utility vehicles and tractors, slid 2.5 percent after rallying 8.1 percent in the past two days.
Overseas investors sold a net $4 million of local shares on yesterday, paring this year’s inflow to $7.7 billion, data from the regulator show.