Indian equities fell amid concern the rally which drove the benchmark index to a two-year high is overdone. Software makers, consumer goods companies and metal producers led the decline.
The BSE India Sensitive Index, or Sensex, lost 0.4 percent to 19,666.59 at the close, with volumes on the gauge exceeding the 30-day average by 18 percent. ITC Ltd., India’s largest cigarette maker, slid 2.2 percent, the biggest drag on the Sensex. Copper producer Sterlite Industries (India) Ltd. paced losses among metal makers. Tata Consultancy Services Ltd., the biggest software exporter, slid 1.8 percent.
Foreigners bought a net $1.2 billion of Indian equities in the first six days of this month, helping the 30-stock measure close near a two-year high yesterday. The Sensex trades at 15.6 times estimated earnings, the highest reading since March. The MSCI Emerging Markets Index is valued at 10.9 times, according to data compiled by Bloomberg.
“There has been some valuation concern as shares are not cheaper than they were a year earlier,” U.R. Bhat, managing director of Dalton Capital Advisors India Pvt. in Mumbai, said by telephone. “We need incremental policy action from the government to provide enough ammunition for flows to continue.”
ITC retreated 2.2 percent to 279.5 rupees, while Hindustan Unilever Ltd., the nation’s biggest household products maker, shed 1.2 percent to 519.3 rupees. Sterlite lost 1.6 percent to 117 rupees. Tata Steel Ltd. sank 2.6 percent to 422.3 rupees, while Housing Development Finance Corp., the country’s largest mortgage lender, decreased 1.2 percent to 830 rupees.
Bharat Heavy Electricals Ltd., the nation’s biggest maker of power equipments, sank 2.9 percent to 236.9 rupees. Larsen & Toubro Ltd., India’s largest engineering company, dropped 1.1 percent to 1,549.7 rupees, its fifth day of loss.
Tata Motors Ltd., the best performer among Sensex stocks in 2012, jumped to a record 327.35 rupees after Credit Suisse Group AG increased the target price to 390 rupees. Mahindra & Mahindra Ltd., the country’s largest producer of sport-utility vehicles and tractors, added 0.6 percent to 964.45 rupees.
The Sensex jumped 26 percent in 2012, its biggest annual gain since 2009, as Prime Minister Manmohan Singh opened the economy to more foreign investments in the past four months to boost an economy growing at the slowest pace in three years and to avert a downgrade of the country’s credit rating. The steps prompted offshore funds to plow a net $24.5 billion into shares last year, the highest among 10 Asian markets tracked by Bloomberg, excluding China.
“The market has run up on expectations of strong earnings and continuation of government measures, some of which may not materialize,” Kishor Ostwal, managing director at CNI Research Ltd., said by phone from Mumbai.
Infosys Ltd., the nation’s second-largest software maker, flags off the earnings season for Sensex companies on Jan. 11, announcing results for the quarter ended Dec. 31. Profit may be 22.45 billion rupees ($408 million), according to the median estimate of 28 analysts in a Bloomberg survey. That compares with 23.7 billion rupees in the same quarter last year.
Infosys slid 0.6 percent to 2,331 rupees. Larger rival Tata Consultancy lost 1.8 percent to 1,276.6 rupees. Wipro Ltd., the third biggest, fell 0.3 percent to 397.05 rupees.
The S&P CNX Nifty Index on the National Stock Exchange of India lost 0.5 percent to 5,971.50. Its January futures settled at 5,998.75. The BSE Mid-Cap Index lost 0.5 percent, ending an eight-day 4.3 percent rally. India VIX, which gauges the cost of protection against losses in the Nifty, added 0.4 percent.