India’s Sensex Index Ends Four-Day Advance on Valuations Concern

Jan. 7 (Bloomberg) -- Indian stocks fell for the first time in five days, dragging benchmark indexes from a two-year high, as declines by lenders and industrial companies offset gains among auto and energy shares.

The BSE India Sensitive Index, or Sensex, lost 0.5 percent, the most since Dec. 27, to 19,691.42 at the close in Mumbai. Housing Development Finance Corp. sank 1.8 percent. Engineering company Larsen & Toubro Ltd. slumped the most since October. Maruti Suzuki India Ltd. surged to a three-year high after CLSA Asia-Pacific Markets upgraded the stock. Oil and Natural Gas Corp. increased for a fourth day.

The Sensex climbed 1.7 percent last week, the most since the period ended Dec. 2, as a private survey showed Indian manufacturing expanded at the fastest pace in six months in December and after U.S. lawmakers passed a bill averting tax increases and spending cuts. The gauge’s valuation rose to 15.7 times estimated profit on Jan. 4, the highest level since March.

“Stocks may consolidate around current levels after the recent sharp rally,” David Pezarkar, head of equities at Daiwa Asset Management (India) Pvt. in Mumbai, said by phone today. “Valuations of some large caps are looking a bit stretched. However, some materials, energy and technology stocks present value-buy opportunity as they have not discounted their earnings potential fully. Markets will watch out for cues from corporate earnings for further direction.”

Infosys Ltd., India’s second-largest software exporter, begins the earnings reporting season for Sensex companies on Jan. 11 by announcing its results for the three months ended December. The company’s shares climbed 1.1 percent to 2,374.80 rupees today.

Overseas Funds

The Sensex rallied 26 percent in 2012, its biggest annual gain since 2009, as government measures to bolster an economy growing at the slowest pace in three years accelerated foreign inflows. Prime Minister Manmohan Singh began announcing in September measures including raising diesel prices and allowing more foreign investment in the retail and airline industries.

The policies helped lure $24.5 billion of foreign inflows into local shares last year, the highest among 10 Asian markets tracked by Bloomberg, excluding China. Overseas funds bought a net $265 million worth of Indian shares on Jan. 3, taking total inflows for the first three days of 2013 to $670 million, data from the market regulator show.

The slowdown in economic growth may have bottomed out, C. Rangarajan, chairman of Prime Minister’s Economic Advisory Council, said in New Delhi on Jan. 5. India’s current account deficit remains high and the country needs to cut inflation to acceptable levels, he said.

CLSA Target

The S&P CNX Nifty Index on the National Stock Exchange of India Ltd. lost 0.5 percent to 5,988.40. Its January futures settled at 6,016.05. The BSE Mid-Cap Index added 0.2 percent, a seventh day of gains. India VIX, which measures the cost of protection against losses in the Nifty, jumped 4.1 percent.

Housing Development Finance, India’s biggest mortgage lender which trades at a 34 percent premium to the Sensex, declined 1.8 percent to 822.95 rupees. HDFC Bank Ltd., the nation’s third-largest lender, sank 1.6 percent to 668.2 rupees.

Maruti jumped 2.5 percent to 1,584.6 rupees, its highest close since Dec. 14, 2009. CLSA analysts Abhijeet Naik and Nitij Mangal raised the 12-month share-price target by 51 percent to 1,915 rupees, citing an improving earnings outlook, according to a Jan. 5 report.

Motorcycles

Mahindra & Mahindra Ltd., India’s biggest sport-utility vehicle maker, increased 1.4 percent to 954.15 rupees after it unveiled two motorcycle models as the company prepares to reenter the market.

The BSE Oil & Gas Index rose 0.2 percent. India may allow a staggered increase in prices of diesel and other fuels before completely ending price controls in the next 15 months, the Economic Times newspaper reported Jan. 4.

Oil & Natural Gas, India’s largest state-owned oil explorer, gained 1.1 percent to 288 rupees. Bharat Petroleum Corp., India’s second-biggest state refiner, soared 3.1 percent to 385.5 rupees. Hindustan Petroleum Corp. rallied 4.9 percent to 329.05 rupees.

Tata Steel Ltd., India’s biggest producer, gained 1.7 percent to 440.9 rupees after the government imposed a 20 percent tax on imports of some varieties of the alloy from China to protect local producers. JSW Steel Ltd. soared 3.3 percent to 854.8 rupees.

To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net