Indian Stocks Drop Most in Two Months as Rally Seen Excessive

Indian equities had their biggest drop in almost two months, erasing a weekly advance, as some investors judged recent gains excessive. Banks and industrials led the retreat.

The BSE India Sensitive Index, or Sensex, retreated 1.1 percent, the most since Oct. 30, to 19,242 at the close. The gauge had climbed to the highest level since April 2011 on Dec. 19. State Bank of India Ltd., the biggest lender, declined 2 percent. Copper producer Sterlite Industries (India) Ltd. and aluminum maker Hindalco Industries Ltd. ended a five-day, more than 10 percent rally.

The Sensex has risen 25 percent this year, headed for its biggest annual jump since 2009, as government steps to open the economy to offshore investment lured foreigners. The gauge’s valuation is near the highest level since April, data compiled by Bloomberg show. Emerging-market stocks dropped the most in six weeks amid concern stalled U.S. budget standoff threatens the outlook for exporters’ earnings.

“The market had run-up significantly, with some stocks rallying as much as 20-25 percent; a correction was waiting to happen,” Chokkalingam G, chief investment officer at Centrum Broking in Mumbai, said by phone. “Concerns on the U.S. fiscal cliff gave some investors the excuse to book profits.”

U.S. House Republican leaders canceled a vote that would permit higher taxes amid stalled budget talks to avert more than $600 billion in tax increases and spending cuts set to start on Jan. 1. The Republicans are seeking to reduce the nation’s deficit with spending cuts, while President Barack Obama wants to raise taxes for top earners.

Lenders Drop

State Bank of India shed 2 percent to 2,334.45 rupees. ICICI Bank Ltd. declined 1.4 percent to 1,123.9 rupees. HDFC Bank Ltd. lost 1.1 percent to 676 rupees. The BSE Bankex Index of 14 lenders lost 1.3 percent, its steepest drop since Nov. 16.

Sterlite tumbled 3.3 percent to 116.95 rupees, ending a five-day 11 percent rally. Hindalco decreased 2.6 percent to 129.3 rupees, paring this week’s advance to 7.8 percent. Jindal Steel & Power Ltd. tumbled 3.5 percent to 454.55 rupees. The BSE India Metal Index slid 1.8 percent, paring this week’s surge to 4.4 percent.

Prime Minister Manmohan Singh began a campaign in 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.

The Sensex is valued at 15.2 times estimated earnings, compared with the MSCI Emerging Markets Index’s 12 times, data compiled by Bloomberg show. Volumes in the gauge exceeded the 30-day average by 24 percent. Sensex’s 30-day volatility was at 10.7, compared with the year’s lowest of 9.06 set on Nov. 26.

‘Year-end Fatigue’

The BSE Mid-Cap Index retreated 1.5 percent, the most since July 26, and the BSE Small-Cap Index had the steepest drop in more than two months, the data show.

“The market appears to be in a sort of uncertainty with some kind of year-end fatigue,” Amar Ambani, head of research at brokerage IIFL Ltd., said in an e-mail today. “Christmas is round the corner but no signs of a Santa Claus rally here. In the coming curtailed week, volatility is likely to escalate due to expiry” of the futures derivatives contract on Dec. 27.

The S&P CNX Nifty Index on the National Stock Exchange of India tumbled 1.1 percent to 5,847.70. India VIX, which gauges the cost of protection against losses in the Nifty, gained 2.2 percent to 14.63, data compiled by Bloomberg show.

Overseas funds were net buyers of Indian stocks for a 26th straight day yesterday. Foreign funds have bought a net $23.2 billion of local shares this year, the highest among 10 Asian markets tracked by Bloomberg, excluding China, data compiled by Bloomberg show.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE