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Indian Stocks Drop as Rally Seen Overdone; Banks, Hero Lead Fall

Indian stocks dropped amid concern the rally that drove the benchmark index to a three-year high may have outpaced the prospects for earnings growth.

HDFC Bank Ltd., the largest lender by market value, slid the most in two weeks after posting the slowest profit growth in four years. Reliance Industries Ltd., owner of the world’s biggest oil-refining complex, erased an intraday gain of 3.3 percent. Hero MotoCorp Ltd. dropped the most in three weeks.

The S&P BSE Sensex decreased 0.3 percent to 20,547.62 at the close in Mumbai. The gauge gained 0.7 percent intraday to its highest level since November 2010 after Reliance reported profit that beat estimates and U.S. lawmakers made progress on a debt deal. The Sensex’s valuation climbed to a one-month high yesterday and its 14-day relative strength index was at 66, approaching the overbought threshold of 70.

“The good news has been priced in,” Paras Bothra, vice president for equity research at Ashika Stock Broking Ltd., said by phone from Mumbai. “The market had run up sharply.”

The Sensex has climbed 5.8 percent this year and is valued at 14.1 times estimated 12-month earnings, compared with 10.6 times for the MSCI Emerging Markets Index, data compiled by Bloomberg show. The Indian gauge’s valuation climbed to 14.12 times yesterday, the most expensive since Sept. 10 and equal to its five-year average, the data show.

HDFC Bank’s second-quarter profit climbed 27 percent to 19.8 billion rupees ($320 million), matching the 19.7 billion rupees estimated by 38 analysts in a Bloomberg News survey. The stock declined 2.3 percent. State Bank of India lost 2.1 percent, ending a four-day rally.

Earnings Scorecard

Reliance yesterday said profit rose 1.5 percent to 54.9 billion rupees, versus the 54.2 billion-rupee median of 25 analyst estimates compiled by Bloomberg News. U.S. Reliance, the third-biggest stock on the index by weighting, fell 0.3 percent to 867.8 rupees.

Tata Consultancy Services Ltd. rose to 2,215.40 rupees, a record. Asia’s largest software exporter by market value said net income rose 34 percent to 47 billion rupees in the three month ended Sept. 30. The earnings, released after the market closed, exceeded the 45.3 billion-rupee median of 45 analysts’ estimates compiled by Bloomberg.

Profits at all four Sensex companies that have reported earnings so far this season have beaten or matched estimates. About 47 percent of the 30 Sensex companies missed estimates in the June quarter, versus 27 percent for the March quarter and 43 percent in the three months through December, data compiled by Bloomberg show.

Hero MotoCorp dropped 2.2 percent to 2,051.05 rupees. Tata Power Co., India’s biggest electricity generator outside state control, slipped 2.1 percent to its lowest level since Oct. 1.

Global investors bought a net $123 million of domestic stocks on Oct. 14, taking this year’s inflow to $14.3 billion, according to data from the market regulator.

The CNX Nifty Index decreased 0.4 percent to 6,089.05. The India VIX, which gauges the cost of protection against losses in the Nifty, rose 1.7 percent.

The market is closed tomorrow for a public holiday.

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