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Indian Stocks Drop From Record as Ranbaxy Plunges on U.S. Ban

Indian stocks dropped for the first time this week as some investors bet the rally in the benchmark index to a record has outpaced the outlook for earnings growth.

Ranbaxy Laboratories Ltd., the nation’s largest drugmaker, tumbled 19 percent after regulators banned it from producing or selling drug ingredients for the U.S. market from a fourth plant in India. Power-equipment maker Bharat Heavy Electricals Ltd. was the worst performer on the S&P BSE Sensex. Housing Development Finance Corp. slid the most in a week.

The Sensex lost 1.1 percent to 21,133.56 at the close in Mumbai, paring the weekly gain to 0.3 percent. The gauge rose for a fourth day yesterday, the biggest stretch of gains since November, as all eight companies on the index that announced earnings so far for the December quarter have beaten or matched analyst forecasts. The Sensex trades at 13.2 times projected 12-month earnings, compared with the three-year average of 13.5 times, data compiled by Bloomberg show.

“Given the rally in the past few days some profit-booking was expected,” U.R. Bhat, managing director of Dalton Capital Advisors India Pvt., said by phone today. “With an event like the monetary policy due next week, traders don’t like to keep large open positions.”

Thirty five of the 38 economists surveyed by Bloomberg predict Reserve Bank of India Governor Raghuram Rajan will hold interest rates on Jan. 28. Still, a panel set up by the RBI to strengthen the monetary policy framework this week recommended setting a retail inflation target of 4 percent. That’s raised concern the central bank will need to increase borrowing costs.

Retail Inflation

Rajan has increased the main rate twice before leaving it unchanged at 7.75 percent on Dec. 18. Consumer prices rose 9.87 percent in December from a year earlier, the fastest pace in a basket of 17 Asia-Pacific economies tracked by Bloomberg. The gauge has averaged 9.88 percent since it was created in 2011.

Ranbaxy plunged the most since Sept. 16, extending this year’s loss to 23 percent. A U.S. Food and Drug Administration inspection of the company’s Toansa facility found that workers retested drug products to produce acceptable findings after the items originally failed analytical testing. Products from three other Ranbaxy plants were already banned in the U.S. because of quality control issues. The Toansa plant makes 60 percent to 70 percent of active ingredients which Ranbaxy sells to producers, according to Sarabjit Kour Nangra, an analyst at Angel Broking Ltd. in Mumbai.

Foreign Funds

Bharat Heavy dropped 3.7 percent, the most since Dec. 13. Larsen & Toubro Ltd., the largest engineering company, fell 2.6 percent, the most since Jan. 9. Housing Development lost 1.3 percent, ending a three-day fall. Novartis India Ltd. tumbled 4.1 percent, the most in six months, after reporting 47 percent plunge in third-quarter profit.

Foreign investors bought a net $75.8 million of domestic shares on Jan. 22, data compiled by Bloomberg show. That took this year’s inflow to $519 million. They invested $20 billion last year, the most in Asia after Japan, and $24.6 billion in 2012, the data show.

The Sensex has slid 0.2 percent this year. It climbed 9 percent in 2013, the best annual gain among the four-largest emerging markets. The CNX Nifty Index retreated 1.2 percent to 6,266.75 The India VIX rose 1.6 percent.

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