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India’s Sensex Drops, Erases Weekly Gain, on Valuations Concern

Oct. 19 (Bloomberg) -- India’s benchmark stock index fell, erasing a weekly advance, on concern equity valuations may have exceeded outlook for growth in corporate earnings.

The BSE India Sensitive Index, or Sensex, lost 0.6 percent at 18,682.31 at the close in Mumbai. Four shares slid for each that gained on the 30-stock gauge. The S&P CNX Nifty Index of 50 companies dropped 0.6 percent to 5,684.25. Tata Consultancy Services Ltd. retreated 1.4 percent before its earnings report. Hindustan Unilever Ltd., the biggest home-products maker, fell the most in a month.

One out of the four Sensex firms that have posted profits for the September quarter have lagged behind analyst estimates, compared with 40 percent in the June quarter and 30 percent in the three months ended March, data compiled by Bloomberg show. The Sensex is valued at 14.8 times estimated earnings, up from 12.6 times at the end of May and more than the MSCI Emerging Markets Index’s multiple of 11.6 times, the data show.

“Company earnings have been reasonably satisfactory so far but valuations are not all that cheap,” Gajendra Nagpal, chief executive officer at Unicon Financial Intermediaries Pvt., said by phone from New Delhi. “The 5,700-5,800 level on the Nifty will be difficult to surmount unless we see a gush of flows. There may not be a significant downside, although there may be some correction.”

The Sensex last month had its biggest monthly gain since January as Prime Minister Manmohan Singh opened retailing and airlines to foreigners, cut fuel subsidies and pared a tax on companies’ overseas borrowings, ending two years of gridlock. The rupee jumped 5.3 percent in the September quarter to become Asia’s best-performing currency from its worst in the preceding three months, data compiled by Bloomberg show.

‘Strong Case’

Interest rates need to come down to revive growth, Finance Minister Palaniappan Chidambaram told Bloomberg Television in Tokyo on Oct. 12, saying the reforms drive may create room for rate cuts. The central bank last month left rates unchanged for a third meeting to fight price increases. It is due to review monetary policy on Oct. 30. Wholesale-price index rose 7.81 percent last month, the fastest pace in 2012, fueled by higher diesel costs, government data showed Oct. 15.

“The case was already strong for easing but the Reserve Bank put inflation as a pre-requisite,” Pankaj Vaish, head of markets for South Asia at Citigroup Inc., said in an interview to Bloomberg India TV. “The finance ministry understands that and is working closely with the RBI. If the RBI were to take a proactive step and ease it would be justifiable even though the inflation reading still is a little bit stubborn.”

TCS Earnings

Tata Consultancy Services dropped 1.4 percent to 1,289.7 rupees. The company may say quarterly profit climbed 39 percent to 34.1 billion rupees ($638 million), according to the median estimate of 36 analysts in a Bloomberg survey.

Hindustan Unilever declined 1.6 percent to 566.55 rupees, paring the year-to-date gain to 39 percent. Bharat Heavy Electricals Ltd., India’s biggest power-equipment maker, tumbled 1.9 percent to 242.3 rupees. Hindalco Industries Ltd., an aluminum producer, lost 2.4 percent to 114.9 rupees.

ITC Ltd. jumped 2 percent to 297.5 rupees, a record. Net income for the maker of Wills cigarettes and Bingo snacks rose 22 percent to 18.4 billion rupees in the September quarter, the Kolkata-based company said. This exceeds the 17.6-billion rupee median of 24 analysts estimates.

The Nifty index’s October futures settled at 5,688.30. The BSE-200 Index lost 0.6 percent and the BSE Mid-Cap Index slid 0.5 percent. The National Stock Exchange of India and the BSE Ltd. traded 967 million shares yesterday, 6 percent more than the 12-month daily average of 910 million.

To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net

To contact the editor responsible for this story: Allen Wan at awan3@bloomberg.net

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