Indian stocks declined for a fourth day, with the benchmark index posting its steepest weekly loss since December 2011, amid concern the rally that drove the market to a record has outpaced the outlook for earnings.
Bharat Heavy Electricals Ltd. (BHEL), the country’s top producer of power equipment, plunged the most in 11 months. State Bank of India had the biggest drop since September. Larsen & Toubro Ltd. (LT), the best performing stock on the benchmark S&P BSE Sensex (SENSEX) this year, lost 4.9 percent. Infosys Ltd. (INFO) led software exporters higher after reporting profit that beat estimates.
The Sensex dropped 1.4 percent to 25,024.35 at the close, taking the weekly loss to 3.6 percent. The gauge’s valuation climbed to 16 times projected 12-month earnings on July 7, the most expensive since April 2011, after the measure climbed to an all-time high. The MSCI Emerging Markets Index trades at a multiple of 11, data compiled by Bloomberg show.
“The rally had gone beyond the valuation comfort zone,” Chokkalingam G., managing director of Equinomics Research and Advisory Pvt., said by phone in Mumbai. “At the end of the day, earnings must support stock prices.”
Bharat Heavy tumbled 8.4 percent, taking this week’s loss to 15 percent, the most on the Sensex. The stock had surged 48 percent this year through last week. Larsen decreased the most in about 11 months, paring this year’s gain to 47 percent.
State Bank lost 4.7 percent, the most since Sept. 23. Bank of Baroda tumbled 5.2 percent, while ICICI Bank (ICICIBC) retreated for a fifth day to its lowest price since May 8. A gauge of lenders decreased 2.7 percent to its lowest level in two months.
The S&P BSE MidCap Index of 238 companies declined to a one-month low, reducing this year’s gain to 32 percent.
Prime Minister Narendra Modi’s government, two months into power after winning India’s biggest election victory in three decades, outlined plans yesterday to retain the deficit target at the lowest level since 2008 while unveiling tax breaks for power utilities and property investment trusts to spur economic growth from near a decade low.
Finance Minister Arun Jaitley’s speech lacked details on how the reduction in the budget gap will be achieved, Moody’s Investors Service said in a statement yesterday.
“Nothing will change fundamentally in the next three to six months nor will you see substantial improvement in earnings in the next one-to-two quarters,” Prashasta Seth, chief executive officer of India Infoline Asset Management Co., told Bloomberg TV India today.
The Sensex has increased 18 percent this year, the best performance among the world’s 10 biggest markets, as foreigners bought $11 billion of shares on optimism Modi’s landslide win will help him fix India’s $1.8 trillion economy. Gross domestic product expanded 4.7 percent in the year ended March 31, after a decade-low growth of 4.5 percent the previous year.
Indian equities may “underperform” in the near term, BNP Paribas SA analysts led by Manishi Raychaudhuri wrote in a note dated today. Indian stocks have trailed Asian equities outside of Japan in 70 percent of “post-budget episodes” in the past seven years, they wrote.
Infosys added 1 percent, ending three days of declines. Net income rose 22 percent to 28.9 billion rupees ($480 million) in quarter ended June, beating the 26.5 billion-rupee median of 33 analysts’ estimates compiled by Bloomberg. Infosys maintained its full-year forecast for sales growth.
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