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Indian Stocks Drop on Valuations Concern; Mahindra Falls

India’s benchmark stock index fell from a two-week high on concern recent gains may have outpaced the outlook for company earnings.

The BSE India Sensitive Index, or Sensex, lost 0.1 percent to 19,453.92 at the close. The gauge has risen 6.1 percent over the past month, the most since the 30-day period ended Feb. 20, data compiled by Bloomberg show. Sun Pharmaceutical Industries Ltd., the most valuable drugmaker, slid from a record. Mahindra & Mahindra Ltd., the largest maker of sport-utility vehicles, retreated for the first time in five days.

The Sensex has risen 26 percent this year, headed for its biggest annual advance since 2009, as government steps to open the economy to overseas investment accelerated foreign buying of local stocks. The rally has pushed the measure’s valuation to 15.4 times estimated earnings, the highest since February, data compiled by Bloomberg show.

“All the positives have been priced in,” said Gajendra Nagpal, chief executive officer with New Delhi-based Unicon Financial Intermediaries Pvt. “Investors are looking for a bigger trigger for the market to move to the next level. That could come in the form of monetary easing by the RBI or easing of the fiscal-cliff concerns in the U.S.”

U.S. Budget Talks

Most Asian stocks fell, with the regional benchmark index trading near a 16-month high, amid concern U.S. budget talks on how to avoid more than $600 billion in spending cuts and tax increases, known as the fiscal cliff, are faltering. Reserve Bank of India Governor Duvvuri Subbarao signaled higher odds of a cut in interest costs even after he held the benchmark rate on Dec. 18 for a fifth policy meeting. The RBI’s next policy review is due on Jan. 29.

Sun Pharmaceutical declined 2.3 percent to 747 rupee, retreating from its highest level since Dec. 1994. Mahindra fell 1.5 percent to 953.15 rupees. Larsen & Toubro Ltd., the largest engineering company, lost 1 percent to 1,617.5 rupees.

Bajaj Auto Ltd., the second-largest motorcycle maker, shed 1.4 percent to 2,112.8 rupees. Software exporter Wipro Ltd. fell 1.1 percent to 382.05 rupees.

The S&P CNX Nifty Index on the National Stock Exchange of India lost 0.2 percent to 5,916.40. India VIX, which gauges the cost of protection against losses in the Nifty, lost 1 percent to 14.32, data compiled by Bloomberg show.

Prime Minister Manmohan Singh’s administration began a campaign in mid-September to revive economic growth from the weakest levels since 2009 and avoid a credit-rating downgrade by paring fuel subsidies, and opening up retailing and aviation to foreign investment. The passing of a banking bill on Dec. 18 was the latest in the series of such measures.

Overseas investors were net buyers of domestic stocks for a 25th day yesterday, the longest run of purchases since the 41-day period ended Oct. 27, 2010. The bought $286 million rupees worth of shares. Offshore funds have bought a net $23.1 billion of Indian shares this year, the highest among 10 Asian markets tracked by Bloomberg, excluding China.

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